An investigation of the unconditional distribution of South African stock index returns

Abstract

This article investigates the distribution of four broad stock indexes and four futures indexes on the Johannesburg Stock Exchange (JSE). It finds that the broad indexes are skewed and highly leptokurtic. Whereas the All Share, Industrial and Financial Indexes are negatively skewed, the Gold Index is positively skewed. In addition, the skewness is not only present in the tails, but also in the central part of the distribution. None of these indexes is covariance stationary over the sample period; this may be due to structural changes in the market such as the introduction of an electronic trading system in 1996 and the volatility introduced by the Asian crisis. For the futures indexes, it finds that only the Gold Index is characterized by (positive) skewness. All the futures indexes have excess kurtosis and none of them is covariance stationary. The futures indexes have less serial correlation than the broad indexes because they are constructed from large, highly liquid stocks.