Financial Crisis and Stock Return Volatility of the JSE General Mining Index: GARCH Modelling Approach
Keywords:
Financial crisis, GARCH models; JSE; mining index; risk-return; volatilityAbstract
The aim of this article is to model the return volatility of the JSE mining sector and analyse
how changes in the return volatility were affected by the 2008 financial crisis. The GARCH,
EGARCH and GJR-GARCH are estimated in mean with the Student’s t-distribution. To account for
the 2008 financial crisis, the sample period, which included daily stock index returns from July 1995
to June 2018, was divided into three sub-periods. From the results, the best-fit model for the three
sub-periods was found to be GJR-GARCH (1, 1). The results revealed that the level of volatility
varies across the three sub-periods with the highest reported pre-crisis and the lowest volatility during
crisis. This article found that the level of volatility decreased significantly during crisis, but began to
rise after the crisis, although not rising to the pre-crisis level. This implies that the crisis increased the
mining investors’ risk aversion. Fundamentally, the magnitude of the volatility is not similar across
three sub-periods. Such variation suggested different reactions of investors to new information. The
fluctuation in volatility proved that the 2008 financial crisis affected JSE mining investors’ attitudes
towards overall risk.
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Prno, J. & Slocombe, D. S. (2012). Exploring the origins of social license to operate in the mining
sector: Perspectives from governance and sustainability theories. Resources Policy, 37(3), 346-357.
Ruppert, D. (2011). Statistics and data analysis for financial engineering. New York: Springer.
Sorensen, P. (2011). Mining in South Africa: A mature industry? International Journal of
Environmental Studies, 68(5), 625–649.
Tsay, R. S. (2010). Analysis of financial time series, 3rd ed., Hoboken, New Jersey: Wiley.
Wurtz, D.,2009. Parameter estimation of ARMA models with GARCH/APARCH errors an R and
SPlus software implementation. Journal of Statistical Software, forthcoming.
Zivot, E. & Wang, J. (2007). Modeling financial time series with S-Plus, New York: Springer.
Smith, J. & Moore, R. (2008). Article Title/The English version of the title. Journal Name in italics/
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the book title. Location: Publisher.
Smith, J. & Moore, R. ( 2009). Article Title/The English version of the title. Proceedings of… in
italics/ The English version of the Proceedings, pp. 1-10, conference location, year & month.
Location: Publisher.
Smith, J. & Moore, R. (2008). Web page. Retrieved from http://www.apastyle.org/elecsource.html,
date: 09.18.2011
Political Economy, 81 (3), 637–654.
Black, F. (1976) Studies of stock price volatility changes. Proceedings of the 1976 Business Meeting
of the Business and Economics Statistics Section, American Statistical Association, 177-181 .
Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of
Econometrics, 31(3), 307-327.
Brooks, C. (2008). Introductory econometrics for finance, 2nd ed., Cambridge: Cambridge University
Press.
Chinhamu, K., Huang, C.K., Huang, C.S. & Hammujuddy, J. (2015). Empirical Analyses of Extreme
Value Models for the South African Mining Index. South African Journal of Economics, 83(1), 41-55.
Ding, Z., Granger, C.W. & Engle, R.F. (1993). A long memory property of stock market returns and a
new model. Journal of Empirical Finance, 1(1), 83-106.
Engle, R.F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of
United Kingdom inflation. Econometrica: Journal of the Econometric Society, 50(4), 987-1007.
Engle, R.F. (1983). Estimates of the variance of US inflation based upon the ARCH model. Journal of
Money, Credit and Banking, 15(3), 286-301.
Engle, R. (2001). GARCH 101: The use of ARCH/GARCH models in applied econometrics. The
Journal of Economic Perspectives, 15(4), 157-168.
Engle, R.F. & Ng, V.K. (1993). Measuring and testing the impact of news on volatility. The journal
of finance, 48(5), 1749-1778.
Engle, R.F., Focardi, S.M. & Fabozzi, F.J. (2012). ARCH/GARCH models in applied financial
econometrics. Encyclopedia of Financial Models II, Fabozzi FJ. John Wiley and Sons: Chichester,
2012; 359-374.
Fama, E. F. (1965). The behavior of stock-market prices. The Journal of Business, 38(1), 34-105.
Franke, J., Härdle, W.K. & Hafner, C.M. (2011). Statistics of financial markets 4th ed., Berlin:
Springer.
Gil-Alana, L.A. & Tripathy, T. (2014). Modelling volatility persistence and asymmetry: A Study on
selected Indian non-ferrous metals markets. Resources Policy, 41, 31-39.
Glosten, L.R., Jagannathan, R. & Runkle, D.E., 1993. On the relation between the expected value and
the volatility of the nominal excess return on stocks. The journal of finance, 48(5), 1779-1801.
Gujarati, D. (2004). Gujarati: Basic econometrics, 4th ed.’, New York: McGraw-Hill Companies.
Huang, C.K., Huang, C.S. & Hammujuddy, J. (2014). Generalized hyperbolic distributions and value-
at-risk estimation for the South African mining index. The International Business & Economics
Research Journal, 13(2), p.319-328.
James. N. (2016) Investors wary of volatile mining industry – African mining marketer.
http://m.miningweekly.com/article/investors-wary-of-volatile-mining-industry-african-mining-
marketer-2016-01-15/rep_id:3861.
Junior, T.P., Lima, F.G. & Gaio, L.E. (2014). Volatility behaviour of BRIC capital markets in the
2008 international financial crisis. African Journal of Business Management, 8(11), 373-381.
Kirchg¨assner, G., Wolters, J. & Hassler, U. (2012). Introduction to modern time series analysis,
Berlin: Springer Science and Business Media.
Mandelbrot, B. (1963). The variation of certain speculative prices. Journal of Business, 36(4),
394–419.
Makoko, K., & Muzindutsi, P.F. (2018). Modelling Return Volatility in the Main Board and the
Alternative Exchange of the Johannesburg Stock Exchange: Application of GARCH Models.
EuroEconomica, 37(3), 66 -76.
Mangani, R. (2008). Modelling return volatility on the JSE securities exchange of South Africa.
African Finance Journal, 10(1), 55-71.
Mathur, S., Chotia, V. & Rao, N.V.M. (2016). Modelling the Impact of Global Financial Crisis on the
Indian Stock Market through GARCH Models. Asia-Pacific Journal of Management Research and
Innovation, 12(1), 11-22.
Mwamba, J.M. & Mantshimuli, L. (2017). On the protection of investment capital during financial
crisis in South African equity market: a risk-based allocation approach. International Economics
Journal, 70(2), 165-192.
Nelson, D.B. (1991). Conditional heteroscedasticity in asset returns: A new approach. Econometrica:
Journal of the Econometric Society, 1(March), 347–370.
Neokosmidis, I. (2009). Econometric analysis of realized volatility: Evidence of financial crisis, PhD
thesis, Economics, Aristotle University of Thessaloniki, Thessaloniki.
Obalade, A. A. (2019). Adaptive Market Hypothesis and Calendar Anomaly in the Selected African
Stock Markets (PhD Thesis). Department of Finance, University of KwaZulu-Natal, South Africa.
Oberholzer, N. & Venter, P. (2015). Univariate GARCH models applied to the JSE/FTSE stock
indices. Procedia Economics and Finance, 24, 491-500.
Prno, J. & Slocombe, D. S. (2012). Exploring the origins of social license to operate in the mining
sector: Perspectives from governance and sustainability theories. Resources Policy, 37(3), 346-357.
Ruppert, D. (2011). Statistics and data analysis for financial engineering. New York: Springer.
Sorensen, P. (2011). Mining in South Africa: A mature industry? International Journal of
Environmental Studies, 68(5), 625–649.
Tsay, R. S. (2010). Analysis of financial time series, 3rd ed., Hoboken, New Jersey: Wiley.
Wurtz, D.,2009. Parameter estimation of ARMA models with GARCH/APARCH errors an R and
SPlus software implementation. Journal of Statistical Software, forthcoming.
Zivot, E. & Wang, J. (2007). Modeling financial time series with S-Plus, New York: Springer.
Smith, J. & Moore, R. (2008). Article Title/The English version of the title. Journal Name in italics/
The English version of the Journal’s name, Vol., No., (month & year of the edition) page numbers
(first-last).
Smith, J. & Moore, R. (2008). Book Title in italics in the oringinal language/The English version of
the book title. Location: Publisher.
Smith, J. & Moore, R. ( 2009). Article Title/The English version of the title. Proceedings of… in
italics/ The English version of the Proceedings, pp. 1-10, conference location, year & month.
Location: Publisher.
Smith, J. & Moore, R. (2008). Web page. Retrieved from http://www.apastyle.org/elecsource.html,
date: 09.18.2011
Published
2020-09-29
How to Cite
Muzindutsi, P.-F., Obalade, A. A. ., & Gaston, R. T. . (2020). Financial Crisis and Stock Return Volatility of the JSE General Mining Index: GARCH Modelling Approach: Array. The Journal of Accounting and Management, 10(3). Retrieved from https://dj.univ-danubius.ro/index.php/JAM/article/view/586
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