Abstract:
Various studies have examined the relationships between macroeconomic variables
and equity returns using large volumes of data from various time periods. Many studies
used an overall stock market index as a proxy for measuring the returns of an entire
stock market. Using an overall stock market index has the consequence that the
performance of different sectors of an economy cannot be considered separately.
The aim of this study was to assess whether relationships exist between four
preselected macroeconomic variables and three sectors of JSE. The Prime lending
rate, CPI, the rand-dollar exchange rate and GDP were cross-correlated at different
time lags with the Top 40, Resource 10, Industrial 25 and the Financial 15 FTSE/JSE
indices.
Quarterly data for four macroeconomic variables and the four indexes was collected
from Bloomberg for the 10-year period 2005 to 2014 and tests of cross-correlation were
performed at different time lags between each macroeconomic factor and each index.
The results showed that the GDP was positively correlated with the Industrial 25 and
Financial 15 indexes. Movements of the Prime lending rate were negatively
correlated with the Top 40, Resource 10, and Financial 15. Inflation was negatively
correlated with the Top 40 and Resource 10 indexes and the rand-dollar exchange
rate was negatively correlated with the Top 40, Industrial 25 and Financial 15
indexes.
