Email this article 
Macroeconomic determinants of responsible investments’ performance under different market conditions: Evidence from South Africa
Abstract
Research aims: The study examines the effect of macroeconomic variables on JSE responsible investments returns under changing market conditions.
Design/Methodology/Approach: The study implemented a sample period comprising monthly data for the period 2015/11 to 2023/03. The dependent variable of the study comprised of JSE responsible investing indices whereas the independent variables consisted of macroeconomic variables. The study also implemented a two-state Markov regime-switching model to cater to the asymmetrical effect between the dependent and independent variable.
Research findings: The JSE responsible investment index returns were found to be significantly positively affected by short-term interest growth rates in a bull regime and significantly negatively in a bear regime. The JSE responsible investment top 30 index returns were significantly negatively affected by the money supply growth rate in a bull regime but not in a bear regime. Moreover, the JSE responsible investment index returns contained alternating efficiencies.
Theoretical contribution/Originality: The study is the first to consider the effect of macroeconomic variables on the performance of responsible investments under different market conditions in South Africa. Consequently, the study sheds light on responsible investing in emerging markets where research is limited.
Practitioner/Policy implication: Portfolio rebalancing is necessary when equity markets are bullish or bearish. Moreover, policymakers should reconsider market regulations, such that the equity market is adaptive and not efficient.
Research limitation/Implication: The study focused on six macroeconomic variables, where this does not affect the robustness of the study. More macroeconomic variables can be used in future research.
Keywords
Full Text:
PDFReferences
Ahn, S. H., & Kim, S. W. (2015). Social investment, social service, and the economic performance of welfare states. International Journal of Social Welfare, 24(2), 109-119. https://doi.org/10.1111/ijsw.12094
Baranidharan, S. & Dhivya, N. (2020). Contagion Effect of Automobile Companies Stock Returns on Indian Stock Market. IPE Journal of Management, 10(1), 35-50.
Bernatonyte, D., Vilke, R. & Volochovic, A. (2009). Regional peculiarities of development of Lithuanian SME. Economics and Management, (14), 676-684.
Boulouta, I. and Pitelis, C.N. (2014). Who needs CSR? The impact of corporate social responsibility on national competitiveness. Journal of Business Ethics, 119, 349-364. https://doi.org/10.1007/s10551-013-1633-2
Brooks, C. (2019). Introductory Econometrics for Finance. New York: Cambridge University Press.
Dam, L., & Heijdra, B. J. (2011). The environmental and macroeconomic effects of socially responsible investment. Journal of Economic Dynamics and Control, 35(9), 1424-1434. https://doi.org/10.1016/j.jedc.2011.05.005
Dicey, L. (2023). Scoring S.A.: Are we beating ESG biases?. Business Day. https://www.businesslive.co.za/bd/companies/2023-04-20-native-scoring-sa-are-we-beating-esg-biases/ (Accessed 15 October 2023)
Dlamini, C.S. (2017). The relationship between macroeconomic indicators and stock returns: evidence from the JSE sectoral indices. Masters Dissertation. University of the Witwatersrand, South Africa.
El Ghoul, S., Karoui, A., Patel, S. & Ramani, S. (2023). The green and brown performances of mutual fund portfolios. Journal of Cleaner Production, 384, 135267. https://doi.org/10.1016/j.jclepro.2022.135267
Ghazani, M.M. & Ebrahim, S.B. (2019). Testing the adaptive market hypothesis as an evolutionary perspective on market efficiency: Evidence from crude oil prices. Finance Research Letters, 30(1), 60-68. https://doi.org/10.1016/j.frl.2019.03.032
Hashmi, S.M., Chang, B.H. & Shahbaz, M. (2021). Asymmetric effect of exchange rate volatility on India's cross‐border trade: Evidence from global financial crisis and multiple threshold nonlinear autoregressive distributed lag model. Australian Economic Papers, 60(1), 64-97. https://doi.org/10.1111/1467-8454.12194
Kaur, J. & Chaudhary, R. (2022). Relationship between macroeconomic variables and sustainable stock market index: an empirical analysis. Journal of Sustainable Finance & Investment, 1-18. https://doi.org/10.1080/20430795.2022.2073957
Krajnakova, E., Navickas, V. & Kontautiene, R. (2018). Effect of macroeconomic business environment on the development of corporate social responsibility in Baltic Countries and Slovakia. Oeconomia Copernicana, 9(3), 477-492. https://doi.org/10.24136/oc.2018.024
Lee, D.D., Humphrey, J.E., Benson, K.L. & Ahn, J.Y. (2010). Socially responsible investment fund performance: the impact of screening intensity. Accounting & Finance, 50(2), 351-370. https://doi.org/10.1111/j.1467-629X.2009.00336.x
Lo, A.W. (2004). The adaptive markets hypothesis: Market efficiency from an evolutionary perspective. Journal of Portfolio Management, Forthcoming, 19(1), 143-151.
Malkiel, B.G. (1989). Efficient market hypothesis. In Finance. Palgrave Macmillan, London.
Moodley, F. (2024). Bond Indices Maturities and Changing Macroeconomic Conditions: Evidence from South Africa. Journal of Economics and Financial Analysis, 8(1), 57-73. https://ojs.tripaledu.com/jefa/article/view/90/99
Moodley, F., Nzimande, N., & Muzindutsi, P. F. (2022). Stock Returns Indices and Changing Macroeconomic Conditions: Evidence from the Johannesburg Securities Exchange. The Journal of Accounting and Management, 12(3), 187.
Mukherjee, T.K. & Naka, A. (1995). Dynamic relations between macroeconomic variables and the Japanese stock market: applying a vector error correction model. Journal of Financial Research, 18(2), 223-237. https://doi.org/10.1111/j.1475-6803.1995.tb00563.x
Muzindutsi, P.F. & Sekhampu, T.J. (2013). Socially responsible investment and macroeconomic stability in South Africa: An application of vector error correction model. Journal of Applied Business Research (JABR), 29(6), 1623-1630. https://doi.org/10.19030/jabr.v29i6.8201
Ndlovu, N. (2023). The impact of macroeconomic variables on the Johannesburg Stock Exchange (JSE) indices. Faculty of Commerce, Department of Finance and Tax. Retrieved from http://hdl.handle.net/11427/38100.
Nyanga, C. & Qutieshat, A. (2022). Progress made towards consensus on arbitrage pricing theory macroeconomic factors: a brief review of literature. Open Journal of Business and Management, 10(2), 789-797. https://doi.org/10.4236/ojbm.2022.102044
Obalade, A.A. & Muzindutsi, P.F. (2018). Are there cycles of efficiency and inefficiency? Adaptive market hypothesis in three African stock markets. Frontiers in Finance and Economics, 15(1), 185-202.
Parab, N. & Reddy, Y.V. (2020). The dynamics of macroeconomic variables in Indian stock market: a Bai–Perron approach. Macroeconomics and Finance in Emerging Market Economies, 13(1), 89-113. https://doi.org/10.1080/17520843.2019.1641533
Paul, K. (2017). The effect of business cycle, market return and momentum on financial performance of socially responsible investing mutual funds. Social Responsibility Journal, 13(3), 513-528. https://doi.org/10.1108/SRJ-09-2016-0154
Peerbhai, F. & Naidoo, J. (2022). Are South African Socially Responsible Investment Funds Doing Well While Doing Good? Acta Universitatis Danubius. OEconomica, 18(5), 154.
Pethe, A. & Karnik, A. (2000). Do Indian stock markets matter? Stock market indices and macro-economic variables. Economic and Political Weekly, 349-356.
Renneboog, L., Ter Horst, J. & Zhang, C. (2008). The price of ethics and stakeholder governance: The performance of socially responsible mutual funds. Journal of Corporate Finance, 14(3), 302–322. https://doi.org/10.1016/j.jcorpfin.2008.03.009
Ross, S. (1976). The Arbitrage Theory of Capital Asset Pricing. Journal of Economic Theory, 13, 341-360. https://doi.org/10.1016/0022-0531(76)90046-6
Sharma, P., Shrivastava, A.K., Rohatgi, S. & Mishra, B.B. (2023). Impact of macroeconomic variables on sustainability indices using ARDL model. Journal of Sustainable Finance & Investment, 13(1), 572-588. https://doi.org/10.1080/20430795.2021.1972679
Statman, M. & Glushkov, D. (2009). The wages of social responsibility. Financial Analysts Journal, 65(4), 33-46. https://doi.org/10.2469/faj.v65.n4.5
Tripathi, V. & Kaur, A. (2020). Socially responsible investing: Performance evaluation of BRICS nations. Journal of Advances in Management Research, 17(4), 525-547. https://doi.org/10.1108/JAMR-02-2020-0020
Tuncay, M. & Dorjnaran, B. (2023). How do socially responsible investment and macroeconomic indicators interact with each other? The case of selected developing countries. Journal of Economics Finance and Accounting, 10(1), 55-64. https://doi.org/10.17261/Pressacademia.2023.1721
Urquhart, A. and McGroarty, F. (2016). Are stock markets really efficient? Evidence of the adaptive market hypothesis. International Review of Financial Analysis, 47, 39-49.
Wen, H., Ho, K.C., Gao, J. & Yu, L. (2022). The fundamental effects of ESG disclosure quality in boosting the growth of ESG investing. Journal of International Financial Markets, Institutions and Money, 81(1),101655. https://doi.org/10.1016/j.intfin.2022.101655
Widyawati, L., (2020). A systematic literature review of socially responsible investment and environmental social governance metrics. Business Strategy and the Environment, 29(2), 619-637. https://doi.org/10.1002/bse.2393
Zhou, J. & Lee, J.M. (2013). Adaptive market hypothesis: evidence from the REIT market. Applied Financial Economics, 23(21), 1649-1662.
Zhou, X., Caldecott, B., Harnett, E., & Schumacher, K. (2020). The effect of firm-level ESG practices on macroeconomic performance. Oxford Sustainable Finance Programme, Smith School of Enterprise and the Environment, University of Oxford. Working Paper, (20-03), 50. https://doi.org/10.2139/ssrn.3618748
DOI: https://doi.org/10.18196/jai.v25i3.21616
Refbacks
Office:
Ruang Jurnal Fakultas Ekonomi dan Bisnis UMY
Gedung Ki Bagus Hadikusuma (E4) Lantai 2, Kampus Terpadu Universitas Muhammadiyah Yogyakarta,
Jalan Brawijaya (Lingkar Selatan), Tamantirto, Kasihan, Bantul, Daerah Istimewa Yogyakarta, Indonesia, 55183
Website: journal.umy.ac.id/index.php/ai - E-mail: jai@umy.ac.id
Journal of Accounting and Investment is licensed under Creative Commons Attribution Attribution-NonCommercial-NoDerivatives 4.0 International License
View My Stats