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Periodical article | Leiden University catalogue | WorldCat |
Title: | Can leading business cycle indicators predict the direction of the South African commercial share price index? |
Authors: | Moolman, Elna Jordaan, Johannes |
Year: | 2005 |
Periodical: | South African Journal of Economics |
Volume: | 73 |
Issue: | 1 |
Pages: | 68-78 |
Language: | English |
Geographic term: | South Africa |
Subjects: | securities price indexes |
External link: | https://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.2005.00005.x/pdf |
Abstract: | It has been shown that leading indicators can be used successfully to predict turning points in South Africa's business cycle (E. Moolman, 2003). However, Moolman also shows that the commercial share price index leads the business cycle by six months while, for example, the nominal effective exchange rate and the composite index of leading indicators of South Africa's trading partners leads the business cycle by 24 months. These two leading indicators should therefore also lead the commercial share price index. This paper evaluates the performance of various leading economic indicators to predict the direction of the commercial share price index. Although the overall share price index is a leading indicator of the business cycle, it is possible that other leading indicators can lead the prices of specific groups of shares such as commercial shares. In addition, a composite index to predict the direction of the commercial share price index is constructed using the best performing individual leading indicators. The results of the empirical analysis show that the best composite model includes the following variables: building plans, new orders, nominal effective exchange rate, the rand/US dollar exchange rate, money supply, the composite index of leading indicators, the yield spread and Sacob's business confidence index. The constructed index predicted the direction of the commercial share price index correctly for 86 percent of the observations. Bibliogr., notes, ref., sum. [ASC Leiden abstract] |