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Can Leading Business Cycle Indicators Predict The Direction Of The South African Commercial Share Price Index?

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  • ELNA MOOLMAN
  • JOHANNES JORDAAN

Abstract

Leading indicators are a popular way to predict turning points in the business cycle. However, since the lead time of these indicators differ, those with a longer lead could potentially also be used to predict turning points in other leading indicators. This paper empirically explores the viability of using leading indicators to predict the turning points of an index of commercial shares on the JSE Securities Exchange. Although share prices are leading the business cycle, other leading indicators that lead the business cycle by a longer period should lead share prices and, therefore, could potentially be useful in predicting the direction of share price movements. The objective of this study is to evaluate and compare the performance of different leading indicators in leading the commercial share price index and in predicting turning points in the commercial share price index. In addition, a multivariate logit model is developed and estimated using these leading indicators in an attempt to improve the accuracy of forecasting the direction of the commercial share index.

Suggested Citation

  • Elna Moolman & Johannes Jordaan, 2005. "Can Leading Business Cycle Indicators Predict The Direction Of The South African Commercial Share Price Index?," South African Journal of Economics, Economic Society of South Africa, vol. 73(1), pages 68-78, March.
    • Handle: RePEc:bla:sajeco:v:73:y:2005:i:1:p:68-78
    DOI: 10.1111/j.1813-6982.2005.00005.x
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    References listed on IDEAS

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    1. Bernard, Henri & Gerlach, Stefan, 1998. "Does the Term Structure Predict Recessions? The International Evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(3), pages 195-215, July.
    2. Renshaw, Edward, 1992. "Identifying no growth years in the US economy : Using increases in crude oil prices," Energy Economics, Elsevier, vol. 14(2), pages 132-135, April.
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    Cited by:

    1. Paetz, Michael & Gupta, Rangan, 2016. "Stock price dynamics and the business cycle in an estimated DSGE model for South Africa," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 166-182.
    2. Wh Boshoff, 2005. "The Properties Of Cycles In South African Financial Variables And Their Relation To The Business Cycle," South African Journal of Economics, Economic Society of South Africa, vol. 73(4), pages 694-709, December.

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