The impact of macroeconomic surprises on individual stock returns in South Africa

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FINAL THESIS - The Impact of Macroeconomic Surprises on Individual Stock Returns in South Africa - Vuyo Majija.pdf (2.47 MB)
Date
2017
Authors
Majija, Vuyokazi Bongeka
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Abstract
This research report explores how various macroeconomic surprises impact on individual stock returns in South Africa. The focus of the study is on the individual constituent stocks of the FTSE/JSE Top 40 Index listed during the period January 2005 to December 2015. This report employs an event study and Bayesian Vector Autoregressive (BVAR) analysis approach to provide comprehensive insights into the relationship between the macroeconomic surprises and the individual stock returns in South Africa. This study closely mirrors a previous study conducted by Gupta and Reid (2013) which explored the impact of five macroeconomic surprises on general stock market indices (ALSI and JSE Top 40) and industry-specific stock returns in South Africa. However, in the interests of completeness and robustness, there are a few material differences and additional innovations introduced in this report. The event study results show that individual stock returns in South Africa are highly sensitive to GDP growth and CA surprises. Upon immediate impact, the GDP growth shocks cause negative stock returns indicating that initially market participants have a general dislike for the surprise element in GDP growth surprise announcements. However, post immediate impact, the stock returns increase and remain positive in line with widely hypothesized economic theory. In addition to GDP growth and CA surprises, the BVAR analysis indicates that USFed shocks have significant dynamic effects on individual stock returns in South Africa. The study finds that individual banking stocks and resource stocks are significantly sensitive to REPO surprises, whilst individual retail, property and consumer goods stocks are very responsive to GDP growth shocks.
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A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, in fulfillment of the requirements for the degree of Master of Management in Finance and Investment. June 2017
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Citation
Majija, Vuyokazi Bongeka (2016) The impact of macroeconomic surprises on individual stock returns in South Africa, University of the Witwatersrand, Johannesburg, <http://hdl.handle.net/10539/23378>
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http://hdl.handle.net/10539/23378
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