Risk Factors in Returns of the South African Stock Market

Szczygielski, Jan; Chipeta, Chimwemwe

doi:10.2139/ssrn.2883302

Cited by 4 publications

(12 citation statements)

References 67 publications

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“…We also contribute by using an updated sample that spans the period January 2001 to December 2016. This contrasts with Szczygielski and Chipeta’s (2015) study that spans the period July 1995 to March 2011. Our sample therefore includes the immediate aftermath of 2007–2009 Global Financial Crises.…”

Section: Introductionmentioning

confidence: 71%

“…We use data for 26 South African industrial sectors. This contrasts with previous South African studies, notably those of Van Rensburg (1995, 1996, 2000) and Szczygielski and Chipeta (2015), which use returns on the JSE ALSI, a limited number of industrial sectors or a sample of individual stocks. Our study also makes a methodological contribution.…”

Section: Introductionmentioning

confidence: 75%

“…The South African stock market, the Johannesburg Stock Exchange (JSE), is a highly developed and globally integrated market. In terms of market capitalization, it exceeds the Madrid Stock Exchange, the Taiwan Stock Exchange and the BM&F Bovespa (Brazil) (Moolman and Du Toit, 2005; Szczygielski and Chipeta, 2015; Desjardins, 2017). Yet, there is a limited number of studies that investigate the macroeconomic drivers of this stock market.…”

Section: Introductionmentioning

confidence: 99%

“…Yet, there is a limited number of studies that investigate the macroeconomic drivers of this stock market. Examples of notable studies are those of Van Rensburg (1995, 1996, 2000), Moolman and Du Toit (2005) and Szczygielski and Chipeta (2015). The conceptual basis of these time-series models is the linear (multi)factor model that underpins the Arbitrage Pricing Theory (APT) (Ross, 1976; Roll and Ross, 1980; Chen et al , 1986; Liow, 2004; Sadorsky, 2008).…”

Section: Introductionmentioning

confidence: 99%

“…Explanatory power ranges between over 11% to almost 16%, depending upon the quintile considered. Szczygielski and Chipeta (2015) use seven factors to explain returns on the JSE ALSI. These are changes in the inflation rate, inflation expectations, building plans passed, growth in the money supply, changes in the oil price, fluctuations in the exchange rate and innovations in the business cycle.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

An augmented macroeconomic linear factor model of South African industrial sector returns

Szczygielski

Brümmer

Wolmarans

2020

JRF

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Purpose This study aims to investigate the impact of the macroeconomic environment on South African industrial sector returns. Design/methodology/approach Using standardized coefficients derived from time-series factor models, the authors quantify the impact of macroeconomic influences on industrial sector returns. The authors analyze the structure of the resultant residual correlation matrices to establish the level of factor omission and apply a factor analytic augmentation to arrive at a specification that is free of omitted common factors. Findings The authors find that global influences are the most important drivers of returns and that industrial sectors are highly integrated with the global economy. The authors show that specifications that comprise only macroeconomic factors and proxies for omitted factors in the form of residual market factors are likely to be underspecified. This study demonstrates that a factor analytic augmentation is an effective approach to ensuring an adequately specified model. Research limitations/implications The findings have a number of implications that are of interest to investors, econometricians and researchers. While the study focusses on a single market, the South African stock market, as represented by the Johannesburg Stock Exchange (JSE), it is a highly developed and globally integrated market. In terms of market capitalization, it exceeds the Madrid Stock Exchange, the Taiwan Stock Exchange and the BM&F Bovespa. Yet, a limited number of studies investigate the macroeconomic drivers of the South African stock market. Practical implications Investors should be aware that while the South African domestic environment, especially political risk, has an impact on returns, global influences are the greatest determinants of returns. No industrial sectors are insulated from global influences and this limits the potential for diversification. This study suggests an alternative set of macroeconomic factors that may be used in further analysis and asset pricing studies. From an econometric perspective, this study demonstrates the usefulness of a factor analytic augmentation as a solution to factor omission in models that use macroeconomic factors to proxy for systematic influences that describe asset prices. Originality/value The contribution lies in providing insight into a large and well-developed yet understudied financial market, the South African stock market. This study considers a much broader set of macroeconomic factors than prior studies. A methodological contribution is made by estimating and interpreting standardized coefficients to discriminate between the impact of domestically and internationally driven factors. This study shows that should coefficients not be standardized, inferences relating to the relative importance of factors will differ. Finally, the authors unify an approach of using pre-specified factors with a factor analytic approach to address factor omission and to ensure a valid and readily interpretable specification.

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Section: Introductionmentioning

confidence: 71%