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Macroeconomic surprises and stock returns in South Africa

Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
Monique Reid (Department of Economics, University of Stellenbosch, Matieland, South Africa)

Studies in Economics and Finance

ISSN: 1086-7376

Article publication date: 26 July 2013




The objective of this paper is to explore the sensitivity of industry‐specific stock returns to monetary policy and macroeconomic news. The paper looks at a range of industry‐specific South African stock market indices and evaluates the sensitivity of these indices to various unanticipated macroeconomic shocks.


The authors begin with an event study, which examines the immediate impact of macroeconomic shocks on the stock market indices, and then use a Bayesian vector autoregressive (BVAR) analysis, which provides insight into the dynamic effects of the shocks on the stock market indices, by allowing them to treat the shocks as exogenous through appropriate setting of priors defining the mean and variance of the parameters in the VAR.


The results from the event study indicate that with the exception of the gold mining index, where the CPI surprise plays a significant role, monetary surprise is the only variable that consistently negatively affects the stock returns significantly, both at the aggregate and sectoral levels. The BVAR model based on monthly data, however, indicates that, in addition to the monetary policy surprises, the CPI and PPI surprises also affect aggregate stock returns significantly. However, the effects of the CPI and PPI surprises are quite small in magnitude and are mainly experienced at shorter horizons immediately after the shock.


To the best of the authors' knowledge, this is the first study conducted on South Africa which analyses the impact of a wide range of unanticipated macroeconomic shocks on stock returns. This paper improves on earlier efforts by using measures of monetary policy, as well as other macroeconomic news, which more cleanly isolates the unanticipated elements of the monetary policy variable and other macroeconomic indicators, in studying the impact of these surprises on stock returns in South Africa.



Gupta, R. and Reid, M. (2013), "Macroeconomic surprises and stock returns in South Africa", Studies in Economics and Finance, Vol. 30 No. 3, pp. 266-282.



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