Impact of economic shocks in the Johannesburg Stock Exchange 15 index prices

Abstract

Technology, innovation, and economic shocks have transformed global financial markets. The latest global health pandemic has been compared to the 2008 global financial crisis, as investors, lawmakers, and regulators worldwide worried about economic collapse. Johannesburg Stock Exchange is Africa's largest. The JSE names SIFIs, whose failure would threaten SA's economy. Uncertainty increases failure risk, as seen in the GFC and COVID-19. This study examined how economic shocks affected investor confidence in South Africa's growing financial market, the JSE 15 Index. Analysis of data from January 1999 to December 2023 examined short- and long-term stock market impacts, the role of the South African Reserve Bank (SARB) in stability, and investor conduct during crises. The two economic shocks' effects on JSE 15 index stock prices were examined using Autoregressive Distributed Lags (ARDL) and correlation analysis. ARDL determines short- and long-term macroeconomic cointegration. Three macroeconomic variables—interest rates (T-Bills), inflation (CPI), and real effective exchange rate (REER)—are used to track their fluctuation during crises. The analysis shows a shift in investor confidence reflected in a considerable decline in financial performance throughout the crisis. As investors' risk tolerance differs, diversification benefits made abnormal returns unimportant. SARB's monetary and fiscal policies mitigated the pandemic. South African investors were also wary due to internal issues. The study shows that global commodity prices and currency rate volatility affect investor confidence more than domestic policy in emerging economies, adding to behavioural finance.

Keywords: {'name': 'Economic shock'}, {'name': 'Johannesburg Stock Exchange (JSE)'}, {'name': 'Global Financial Crisis (GFC)'}, {'name': 'Volatility'}, {'name': 'Macroeconomic variables'}, {'name': 'Emerging markets'}, {'name': 'Investor confidence'}, {'name': 'JSE 15 index'}, {'name': 'Behavioural finance'}

Authors & affiliations

Malusi Zondi
University of KwaZulu-Natal

Masibulele Phesa
University of Kwazulu Natal

Victoria Abena Nutassey
Catholic University of Ghana

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