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Global Risk Factors and South African Equity Indices

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  • Daniel Adam Polakow
  • Emlyn James Flint

Abstract

South African equity is frequently portrayed as a market requiring a high degree of local expertise – to appropriately understand its many idiosyncratic features – as well as intimate knowledge of its unique drivers – to prudently invest in the same. This claim is evidenced by the amount of research and effort devoted to understanding South African-specific economics, interest rates and risks. The aim of this research is to debunk this perception with a simple yet robust and highly replicable statistical model (best-subsets regression) for the majority of the traded South African equity indices. We show how the South African equity market is mostly a one-way mirror of a confluence of international factors, all arguable largely unrelated to South Africa. We discuss why these models are currently less useful than their longer-term predictive averages and note the current relevance of including implied volatility and interest rates as predictors.

Suggested Citation

  • Daniel Adam Polakow & Emlyn James Flint, 2015. "Global Risk Factors and South African Equity Indices," South African Journal of Economics, Economic Society of South Africa, vol. 83(4), pages 598-616, December.
  • Handle: RePEc:bla:sajeco:v:83:y:2015:i:4:p:598-616
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    File URL: http://hdl.handle.net/10.1111/saje.12065
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    References listed on IDEAS

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    1. Pukthuanthong, Kuntara & Roll, Richard, 2009. "Global market integration: An alternative measure and its application," Journal of Financial Economics, Elsevier, vol. 94(2), pages 214-232, November.
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    4. Daniel Polakow & Tim Gebbie, 2006. "How many independent bets are there?," Papers physics/0601166, arXiv.org, revised Jan 2008.
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