Regime-Dependent Asset Market Linkages and Portfolio Risk Management: Evidence from South Africa

Dickson Mdhlalose

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: The relationships among different investment types in South Africa, and how these shift with the overall economic environment, are the focus of this research, as is what this means for managing the risk of investment collections. Using a Markov-Switching Vector Autoregressive (MS-VAR) method, we observe how the Johannesburg Stock Exchange (JSE) All Share Index, South African government bonds, gold priced in South African rand, listed property, and the USD/ZAR exchange rate move together in both rising (bull) and falling (bear) markets from January 2000 to December 2024, with 300 months of data. During bear markets, the way investments' returns relate to each other increases considerably, which supports the idea of contagion and, in effect, lowers the number of genuinely separate investments in a portfolio by roughly 50% compared to bull markets. South African government bonds do not protect investments during bear market periods, which is typical for a developing nation with growing government finance issues and a series of credit rating downgrades.

Keywords: Markov-switching VAR; Regime-dependent correlations; Safe haven assets; Portfolio risk management; Dynamic asset allocation (search for similar items in EconPapers)
JEL-codes: C32 G01 G11 G15 O55 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:341030

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