Analysis of macroeconomic drivers of stock market performance pre and during the COVID-19 Period:the case of South Africa

Abstract

The study analysed macroeconomic drivers of stock market performance for the preand during the COVID-19 period. The aim was attained by formulating two models, the pre-and during the COVID-19 models. The study used the Vector Error Correction Model (VECM) to determine how macroeconomic drivers such as, economic growth, exchange rate fluctuations, and stock market liquidity influenced the JSE stock price index during these two distinct time frames. The results revealed that the turnover ratio has a role, exchange rates have complex dynamics, and GDP sensitivity changes. During pre-COVID-19, positive short-term correlations between GDP growth and stock prices were evident, while exchange rate fluctuations exhibited transitory effects. In contrast, the COVID-19 period model unveiled a muted response to GDP, increased sensitivity to exchange rate shocks, and a heightened influence of the turnover ratio in sustaining market stability. This study adds to the understanding of the behaviour of the South African stock market and provides a methodological framework for future research on the intricate interactions between financial markets and macroeconomic drivers.