An examination of the effects of major political change on stock market volatility: The South African experience

Robert D. Brooks, Sinclair Davidson, Robert W. Faff*

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

18 Citations (Scopus)

Abstract

Prior to President de Klerk's historic announcement on 2 February 1990, South Africa was the subject of extreme economic and political isolation. As a result of this announcement, it would be expected that South Africa's financial markets transformed from a state of segmentation to a degree of integration in world markets. One means of assessing the possible effects of this major political change is by investigating stock market volatility. Specifically, we would expect that the post-announcement volatility would behave more like that observed in other developed markets. Accordingly, in this paper, we investigate the applicability of the ARCH family of models to South African stock return data, over the period 20 March 1986 to 23 February 1996. Our results support the applicability of ARCH models. Furthermore, more complex volatility models can be supported in the post-announcement period, suggesting greater international integration of the Johannesburg Stock Exchange in the post-1990s period.

Original languageEnglish
Pages (from-to)255-275
Number of pages21
JournalJournal of International Financial Markets, Institutions and Money
Volume7
Issue number3
DOIs
Publication statusPublished - Oct 1997
Externally publishedYes

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