The impact of selected macroeconomic variables on sectors of the JSE

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.