The high-frequency response of the Johannesburg Stock Exchange all share index to South African trade balance and consumer price index announcements: an event study approach
Date
2022
Authors
Ndlovu, Sandile E.
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Abstract
This study analyses the temporal effect of consumer inflation and trade balance surprises on both returns and returns volatility of the Financial Times Securities Exchange/Johannesburg Securities Exchange (FTSE/JSE) All Share Index (ALSI) using an event study approach and high-frequency intraday 1- minute quotes over the 2012–2021 period. Sub-samples are used to distinguish the effects of consumer inflation and trade balance shocks on stock returns and returns volatility during normal periods, crisis periods, economic expansions and economic recessions. A short 70-minute window period is used to isolate the effects of consumer inflation and trade balance shocks and limit data contamination, but also allow reasonable time for stock returns to fully digest the specific macroeconomic news. Consumer inflation and trade balance surprises are discovered to have statistically and economically significant effects on intraday high-frequency FTSE/JSE ALSI returns and returns volatility. And anticipated changes in consumer inflation and trade balances announcements are also found to have a bearing on stock returns and returns volatility (in most but not all instances) which suggests that the FTSE/JSE ALSI is to a large degree informationally inefficient with regards to consumer inflation and trade balance news. The empirical results indicate that stock returns do not always respond instantaneously to unexpected announcements especially in the case of consumer inflation, but the degree of mechanical efficiency is moderate to high (and not extremely high). Furthermore, the asymmetric GARCH results reveal that leverage effects are present - positive and negative consumer inflation and trade balance shocks have asymmetric effects on conditional variance.
Description
A research report submitted in partial fulfilment of the requirements for the degree of Master of Economic Science to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, 2022