This study investigates and concludes on thus the predictability of economic activity in South Africa through the use of share price indices and banking sector asset levels as leading indicators. This study investigates share price and banking sector information using both nominal and real quarterly and monthly time-series data for the period March 1998 to October 2017. For share prices analysis, it takes market segmentation on the JSE into account, and examines causality between the All-Share index, the Industrial index, the Resources index and the Financial index against GDP and the index of Industrial Production (IIP) using the test proposed by Granger (1969). For the banking sector development analysis, it takes the South African Reserve Bank’s disclosure of all banking institution assets and examines if changes in those asset levels Granger-cause the changes to GDP and IIP. This study builds on the work performed by previous studies, specifically on Sayed, Auret and Page (2017) and Har, Ee, and Tan (2009), which test the leading relationship of the stock market for economic activity. This study adopts a similar approach to these studies, while also making certain adjustments and additions to their methodology, aiming to produce more robust findings. This study not only tests for a new relationship between banking development and economic activity, but it also conducts several additional stationarity tests to provide more conclusive evidence of the data’s stationarity before Granger-causality testing is performed. The additional stationarity tests in this study establish that some time series data, which Sayed et al. (2017) concluded to be stationary, is in fact not stationary, and this contrary finding directly impacts the subsequent Granger-causality testing and results. This study also notes and corrects Sayed et al.'s(2017) methodology which fails to perform subsequent stationarity testing on its differenced time series data, and thus fails to prove that the transformed data is satisfactorily stationary and acceptable for Granger-causality testing. Another adjustment we make to the methodology is the interpretation of the Index for Industrial Production (IIP), which we view as a volume based index rather than a price based index that can be adjusted for inflation, which was the position of Sayed et al. (2017). The empirical investigation of this study reveals some positive evidence in favour of the JSE as a leading indicator of economic activity, where unidirectional causality is established between the four market segmentation proxies and the macroeconomic variables. This is however less conclusive than the findings of previous South African studies, which is explained. For the banking sector’s development analysis, the empirical tests produce inconsistent findings across monthly and quarterly data, leaving one unable to confirm a causal relationship existing between the banking sector’s development and economic activity.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uct/oai:localhost:11427/29548 |
| Date | 14 February 2019 |
| Creators | Mellon, Richard |
| Contributors | Rajaratnam, Kanshukan |
| Publisher | University of Cape Town, Faculty of Commerce, Department of Finance and Tax |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Master Thesis, Masters, MCom |
| Format | application/pdf |
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