• G10
  • Macroeconomic uncertainty;
  • stock market volatility;
  • financial stability;
  • asymmetric GARCH models


This paper analyses how systematic risk emanating from the macroeconomy is transmitted into stock market volatility using augmented autoregressive Generalised Autoregressive Conditional Heteroscedastic (AR-GARCH) and vector autoregression (VAR) models. Also examined is whether the relationship between the two is bidirectional. By imposing dummies for the 1997-1998 Asian and the 2007-2009 sub-prime financial crises, the study further analyses whether financial crises affect the relationship between macroeconomic uncertainty and stock market volatility. The findings show that macroeconomic uncertainty significantly influences stock market volatility. Although volatilities in inflation, the gold price and the oil price seem to play a role, it is found that volatility in short-term interest rates and exchange rates are the most important, suggesting that South African domestic financial markets are increasingly becoming interdependent. Finally, the results show that financial crises increase volatility in the stock market and in most macroeconomic variables, and, by so doing, strengthen the effects of changes in macroeconomic variables on the stock market.