The relationship between economic activity and stock market perfomance: evidence from South Africa

Abstract

The relationship between real economic activity and stock market performance is one that has been extensively researched throughout many decades, across many economies. Many issues and debates have stemmed involving this relationship, with the major ones including those of the significance of the relationship, nature of the relationship as well as causality and direction of causality within the relationship. This research paper examines this relationship within the South African context, comparing the pre and post 2008 global financial crisis periods. Results both in support of and contrary to theory were found as real economic activity had an immediate postitive response to shocks imposed on the stock index, whilst the stock index had an immediate negative response to shocks imposed on real economic activity. Through the use of granger causality testing, no causality was found in either direction. Furthermore, no major differences were noted between the pre and post crisis periods.