Predictive ability of competing models for South Africa's fixed business non-residential investment spending

Abstract

The study evaluates the forecasting ability of models of South Africa’s real fixed business non-residential investment spending growth over the recent 2003:1–2011:4 out-of-sample period. The forecasting models are based on the Accelerator, Neoclassical, Cash-Flow, Average Q, Stock Price and Excess Stock Return Predictors models of investment spending. The Average Q, Stock Price and Return Predictors models appear more important in forecasting the behaviour of South Africa’s business investment spending growth over the recent 2003:1–2011:4 out-of-sample period. The results from this study point to the important role of the stock market in promoting investment growth in South Africa, underscoring the need for stock market development. Also, stock market variables seem to play an increasingly important role in predicting investment spending behaviour in recent times.