Determinants of South African Asset Market Co-Movement: Evidence from Investor Sentiment and Changing Market Conditions
The co-movement of multi-asset markets in emerging markets has become an important determinant for investors seeking diversified portfolios and enhanced portfolio returns. Despite this, studies have failed to examine the determinants of the co-movement of multi-asset markets such as investor sentime...
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2025-01-01
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| author | Fabian Moodley Sune Ferreira-Schenk Kago Matlhaku |
| author_facet | Fabian Moodley Sune Ferreira-Schenk Kago Matlhaku |
| author_sort | Fabian Moodley |
| collection | DOAJ |
| description | The co-movement of multi-asset markets in emerging markets has become an important determinant for investors seeking diversified portfolios and enhanced portfolio returns. Despite this, studies have failed to examine the determinants of the co-movement of multi-asset markets such as investor sentiment and changing market conditions. Accordingly, this study investigates the effect of investor sentiment on the co-movement of South African multi-asset markets by introducing alternating market conditions. The Markov regime-switching autoregressive (MS-AR) model and Markov regime-switching vector autoregressive (MS-VAR) model impulse response function are used from 2007 March to January 2024. The findings indicate that investor sentiment has a time-varying and regime-specific effect on the co-movement of South African multi-asset markets. In a bull market condition, investor sentiment positively affects the equity–bond and equity–gold co-movement. In the bear market condition, investor sentiment has a negative and significant effect on the equity–bond, equity–property, bond–gold, and bond–property co-movement. Similarly, in a bull regime, the co-movement of South African multi-asset markets positively responds to sentiment shocks, although this is only observed in the short term. However, in the bear market regime, the co-movement of South African multi-asset markets responds positively and negatively to sentiment shocks, despite this being observed in the long run. These observations provide interesting insights to policymakers, investors, and fund managers for portfolio diversification and risk management strategies. That being, the current policies are not robust enough to reduce asset market integration and reduce sentiment-induced markets. Consequently, policymakers must re-examine and amend current policies according to the findings of the study. In addition, portfolio rebalancing in line with the findings of this study is essential for portfolio diversification. |
| format | Article |
| id | doaj-art-37fb56cde8464ac29d6d1414e0edb917 |
| institution | Kabale University |
| issn | 2227-9091 |
| language | English |
| publishDate | 2025-01-01 |
| publisher | MDPI AG |
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| series | Risks |
| spelling | doaj-art-37fb56cde8464ac29d6d1414e0edb9172025-01-24T13:48:20ZengMDPI AGRisks2227-90912025-01-011311410.3390/risks13010014Determinants of South African Asset Market Co-Movement: Evidence from Investor Sentiment and Changing Market ConditionsFabian Moodley0Sune Ferreira-Schenk1Kago Matlhaku2School of Economic Science, North-West University, Gauteng 1174, South AfricaSchool of Economic Science, North-West University, Gauteng 1174, South AfricaSchool of Economic Science, North-West University, Gauteng 1174, South AfricaThe co-movement of multi-asset markets in emerging markets has become an important determinant for investors seeking diversified portfolios and enhanced portfolio returns. Despite this, studies have failed to examine the determinants of the co-movement of multi-asset markets such as investor sentiment and changing market conditions. Accordingly, this study investigates the effect of investor sentiment on the co-movement of South African multi-asset markets by introducing alternating market conditions. The Markov regime-switching autoregressive (MS-AR) model and Markov regime-switching vector autoregressive (MS-VAR) model impulse response function are used from 2007 March to January 2024. The findings indicate that investor sentiment has a time-varying and regime-specific effect on the co-movement of South African multi-asset markets. In a bull market condition, investor sentiment positively affects the equity–bond and equity–gold co-movement. In the bear market condition, investor sentiment has a negative and significant effect on the equity–bond, equity–property, bond–gold, and bond–property co-movement. Similarly, in a bull regime, the co-movement of South African multi-asset markets positively responds to sentiment shocks, although this is only observed in the short term. However, in the bear market regime, the co-movement of South African multi-asset markets responds positively and negatively to sentiment shocks, despite this being observed in the long run. These observations provide interesting insights to policymakers, investors, and fund managers for portfolio diversification and risk management strategies. That being, the current policies are not robust enough to reduce asset market integration and reduce sentiment-induced markets. Consequently, policymakers must re-examine and amend current policies according to the findings of the study. In addition, portfolio rebalancing in line with the findings of this study is essential for portfolio diversification.https://www.mdpi.com/2227-9091/13/1/14MS-ARMS-VARinvestor sentimentco-movementasset marketsSouth Africa |
| spellingShingle | Fabian Moodley Sune Ferreira-Schenk Kago Matlhaku Determinants of South African Asset Market Co-Movement: Evidence from Investor Sentiment and Changing Market Conditions Risks MS-AR MS-VAR investor sentiment co-movement asset markets South Africa |
| title | Determinants of South African Asset Market Co-Movement: Evidence from Investor Sentiment and Changing Market Conditions |
| title_full | Determinants of South African Asset Market Co-Movement: Evidence from Investor Sentiment and Changing Market Conditions |
| title_fullStr | Determinants of South African Asset Market Co-Movement: Evidence from Investor Sentiment and Changing Market Conditions |
| title_full_unstemmed | Determinants of South African Asset Market Co-Movement: Evidence from Investor Sentiment and Changing Market Conditions |
| title_short | Determinants of South African Asset Market Co-Movement: Evidence from Investor Sentiment and Changing Market Conditions |
| title_sort | determinants of south african asset market co movement evidence from investor sentiment and changing market conditions |
| topic | MS-AR MS-VAR investor sentiment co-movement asset markets South Africa |
| url | https://www.mdpi.com/2227-9091/13/1/14 |
| work_keys_str_mv | AT fabianmoodley determinantsofsouthafricanassetmarketcomovementevidencefrominvestorsentimentandchangingmarketconditions AT suneferreiraschenk determinantsofsouthafricanassetmarketcomovementevidencefrominvestorsentimentandchangingmarketconditions AT kagomatlhaku determinantsofsouthafricanassetmarketcomovementevidencefrominvestorsentimentandchangingmarketconditions |