Browsing by Author "Manyumwa, Tonderia"

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    The interdependence of the JSE All Share Index and the S&P 500 Index
    (University of the Witwatersrand, Johannesburg, 2024) Manyumwa, Tonderia; Odei-Mensah, Jones
    Purpose: This paper seeks to understand if such an association exists between these two markets in recent times and to examine the extent to which it exists if the association is present. Method: As markets become increasingly interconnected, it becomes imperative to constantly examine and monitor the evolving patterns of dependency. This entails exploring metrics such as correlation breakdowns, and other measures that capture the extent to which stock market comovements are affecting global investors. Therefore, the existence of strong interconnections and co-movements among international stock markets calls for continued monitoring and the studying of the patterns of interdependence, as this research will inform investors, policymakers, and financial institutions to better navigate the intricacies of global markets and make informed decisions to safeguard the general financial stability of the financial sector and optimize portfolio performance on a risk-adjusted basis (Moiseev and Popova, 2021). In this research paper, empirical evidence of international stock market interdependence has been further assessed in a way that has not been evident in the literature review as follows. This paper examines the interdependence of the Johannesburg Stock Exchange (JSE) with the US stock market, using a modified GARCH model called the Dynamic Conditional Correlation model. The analysis uses weekly log returns from January 2011 to December 2022, with data sourced from Bloomberg. Key Findings: The results indicate a strong interdependence between the two indices. Specifically, the DCC-GARCH model reveals that the previous period’s residual positions and volatility significantly influence the current period’s volatility for both indices. This indicates that global market shocks have a substantial impact on the South African market, diminishing the diversification benefits of including the S&P 500 in a South African portfolio. Recommendations: Given the strong interdependence, South African investors should consider exploring alternative international markets or asset classes to achieve effective diversification. Policymakers and financial institutions should also take into account the significant influence of global market dynamics on local markets when developing investment strategies and regulations