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Monetary policy and the stock market in South Africa: how do South African equity prices respond to expected and unexpected changes in the repo rate?

This analyses the impact of unexpected changes in monetary policy on the South African equity market over the period 2005 -2018. In an attempt to understand this relationship, two main views have emerged. The wealth effect suggests that monetary policy changes have an indirect effect on the stock ma...

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Main Author: Ramatlo, Tshegofatso
Other Authors: Ndlovu, Godfrey
Format: Thesis
Language:English
Published: School of Economics 2020
Subjects:
Monetary Policy
Stock Market
Equity Market
JSE All Share Index
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access_status_str Open Access
author Ramatlo, Tshegofatso
author2 Ndlovu, Godfrey
author_browse Ndlovu, Godfrey
Ramatlo, Tshegofatso
author_facet Ndlovu, Godfrey
Ramatlo, Tshegofatso
author_sort Ramatlo, Tshegofatso
collection Thesis
description This analyses the impact of unexpected changes in monetary policy on the South African equity market over the period 2005 -2018. In an attempt to understand this relationship, two main views have emerged. The wealth effect suggests that monetary policy changes have an indirect effect on the stock market, via changes in the value of private portfolios. On the other hand, it has been argued that the stock market is an independent source of macroeconomic volatility to which policy makers may wish to consider. This paper applies an event study approach to examine the stock market reaction to monetary policy. Furthermore, to understand the economic sources underpinning that reaction a Vector autoregressive model is estimated. The results suggest that on average, a surprise rate hike of 100 basis points causes short term JSE All Share index total returns to decline by 2.71%. We also find that the stock market reacts positively (negatively) to expansionary (contractionary) unexpected monetary policy actions due to revised market expectations about future dividends, excess premiums and the discount rate. The findings are crucial for central bank policy makers and JSE stock market investors.
format Thesis
id oai:open.uct.ac.za:11427/30975
institution University of Cape Town (South Africa)
language eng
last_indexed 2026-06-10T12:32:46.693Z
license_str Not specified — see source repository
provenance_str_mv Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository
publishDate 2020
publishDateRange 2020
publishDateSort 2020
publisher School of Economics
publisherStr School of Economics
record_format dspace
source_str UCTD — University of Cape Town Open Access Repository
spelling oai:open.uct.ac.za:11427/30975 Monetary policy and the stock market in South Africa: how do South African equity prices respond to expected and unexpected changes in the repo rate? Ramatlo, Tshegofatso Ndlovu, Godfrey Monetary Policy Stock Market Equity Market JSE All Share Index This analyses the impact of unexpected changes in monetary policy on the South African equity market over the period 2005 -2018. In an attempt to understand this relationship, two main views have emerged. The wealth effect suggests that monetary policy changes have an indirect effect on the stock market, via changes in the value of private portfolios. On the other hand, it has been argued that the stock market is an independent source of macroeconomic volatility to which policy makers may wish to consider. This paper applies an event study approach to examine the stock market reaction to monetary policy. Furthermore, to understand the economic sources underpinning that reaction a Vector autoregressive model is estimated. The results suggest that on average, a surprise rate hike of 100 basis points causes short term JSE All Share index total returns to decline by 2.71%. We also find that the stock market reacts positively (negatively) to expansionary (contractionary) unexpected monetary policy actions due to revised market expectations about future dividends, excess premiums and the discount rate. The findings are crucial for central bank policy makers and JSE stock market investors. 2020-02-11T07:43:49Z 2020-02-11T07:43:49Z 2019 2020-01-28T11:09:35Z Master Thesis Masters MCom http://hdl.handle.net/11427/30975 eng application/pdf School of Economics Faculty of Commerce
spellingShingle Monetary Policy
Stock Market
Equity Market
JSE All Share Index
Ramatlo, Tshegofatso
Monetary policy and the stock market in South Africa: how do South African equity prices respond to expected and unexpected changes in the repo rate?
thesis_degree_str Master's
title Monetary policy and the stock market in South Africa: how do South African equity prices respond to expected and unexpected changes in the repo rate?
title_full Monetary policy and the stock market in South Africa: how do South African equity prices respond to expected and unexpected changes in the repo rate?
title_fullStr Monetary policy and the stock market in South Africa: how do South African equity prices respond to expected and unexpected changes in the repo rate?
title_full_unstemmed Monetary policy and the stock market in South Africa: how do South African equity prices respond to expected and unexpected changes in the repo rate?
title_short Monetary policy and the stock market in South Africa: how do South African equity prices respond to expected and unexpected changes in the repo rate?
title_sort monetary policy and the stock market in south africa how do south african equity prices respond to expected and unexpected changes in the repo rate
topic Monetary Policy
Stock Market
Equity Market
JSE All Share Index
url http://hdl.handle.net/11427/30975
work_keys_str_mv AT ramatlotshegofatso monetarypolicyandthestockmarketinsouthafricahowdosouthafricanequitypricesrespondtoexpectedandunexpectedchangesinthereporate

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