The determinants of volatility connectedness of South African equity super sectors
Year: 2024
Type: article
Abstract: The paper aims to explore the determinants of total volatility connectedness of nine super sectors on the Johannesburg Stock Exchange (JSE) market from 3rd January 2006 to 31st December 2021. These sectors are Automobile and Parts, Chemical, Telecommunication, Technology, Energy, Health, Finance, Insurance, and General Industrials. The paper applied Diebold and Yilmaz connectedness matrix and the time-varying parameter – vector autoregressive (TVP-VAR) model to determine the sectorial total volatility connectedness index (STVCI). After that, the nonlinear autoregressive distributed lag model (NARDL) was used to determine the asymmetric effects and the drivers of STVCI. It was found that the partial sum decomposition of the South African volatility index (SAVI) and Economic Policy Uncertainty Index (EPU) are the key determinants of the STVCI both in the long and short run. However, domestic market return (DMR) shows no significant asymmetric effect on STVCI. The study concluded that SAVI and EPU are the key determinants of volatility connectedness among the JSE super-sectors. The results unveil important implications for sectorial investors and policymakers on potential regulations and stability of the significant determinants of spillover risk.
Institutions: University of KwaZulu-Natal, University of the Western Cape
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $738
OpenAlex ID: W4404246072