The Effect of Geopolitical Uncertainty and Macroeconomic Variables on JSE-Headline Indices Return Volatility
DOI:
https://doi.org/10.51137/wrp.ijarbm.772Keywords:
E-GARCH; Headline indices; Macroeconomy, Geopolitical Uncertainty; South AfricaAbstract
The objective is to examine the effect of geopolitical risk and macroeconomic fundamentals on the Johannesburg Stock Exchange (JSE) headline indices return volatility. Using the exponential generalised autoregressive heteroscedastic (E-GARCH) model for the period November 2016 to September 2025, the findings reveal that geopolitical uncertainty and macroeconomic variables have a significant effect on JSE-Headline indices return volatility. The inflation growth rate has a positive significant effect on the JSE Mid-cap index return volatility whereas it has an insignificant effect on the JSE Large-cap index, JSE Small-cap index and JSE Fledgling index return volatility. Interest rate growth rate and real effective exchange growth rate an insignificant effect on JSE-Headline indices return volatility. South African geopolitical risk has a negative significant effect on the JSE Large-cap index return volatility and a positive significant effect on the JSE Small-cap index return volatility. The findings associated with the leverage effects are reverse of the conventual norm, as the study identifies positive leverage effects across JSE-Headline indices return. That being, past positive shocks tend to influence return volatility more than negative shocks. Collectively, the study has important implications for policy makers and investors, all of which is discussed herein.
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