Macroeconomic Surprises and Stock Returns in South Africa

Rangan Gupta and Monique Reid

No 201212, Working Papers from University of Pretoria, Department of Economics

Abstract: The objective of this paper is to explore the sensitivity of industry-specific stock returns to monetary policy and macroeconomic news. The paper looks at a range of industry-specific South African stock market indices and evaluates the sensitivity of these indices to a various unanticipated macroeconomic shocks. We begin with an event study, which examines the immediate impact of macroeconomic shocks on the stock market indices, and then use a Bayesian Vector Autoregressive (BVAR) analysis, which provides insight into the dynamic effects of the shocks on the stock market indices, by allowing us to treat the shocks as exogenous through appropriate setting of priors defining the mean and variance of the parameters in the VAR. The results from the event study indicate that with the exception of the gold mining index, where the CPI surprise plays a significant role, monetary surprise is the only variable that consistently negatively affects the stock returns significantly, both at the aggregate and sectoral levels. The BVAR model based on monthly data however, indicates that, in addition to the monetary policy surprises, the CPI and PPI surprises also affect aggregate stock returns significantly. However, the effects of the CPI and PPI surprises are quite small in magnitude and are mainly experienced at shorter horizons immediately after the shock.

Keywords: Bayesian Vector Autoregressive Model; Event Study; Macroeconomic Surprises; Stock Returns (search for similar items in EconPapers)
JEL-codes: C22 C32 E31 E44 G1 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2012-04
New Economics Papers: this item is included in nep-afr and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Macroeconomic surprises and stock returns in South Africa (2013)
Working Paper: Macroeconomic Surprises and Stock Returns in South Africa (2012)
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