Asymmetric Macroeconomic Shocks and Asset Price Behaviors in Selected African Countries

Saliu Mojeed Olanrewaju,Ogunleye Edward Oladipo

doi:10.5296/ber.v11i2.18481

Abstract

This study examines the relationship between Asset prices (Stock and Real estate prices) and Macroeconomic variables in four selected African countries. The study employs the Westerlund Error Correction Based Panel Cointegration test and Eight-variable Structural Vector Autoregressive model to examine the relationship between asset prices and macroeconomic variables. Findings from the study confirm that no long-run relationship exists between both Asset prices and macroeconomic variables. The study equally reveals that portfolio diversification benefits of both stock and real estate markets are more pronounced in the period of a boom than the recession period in Africa. The results also show that GDP growth rate shock exerts a significant impact on both asset prices during expansion and recession periods. The study reveals that foreign interest rates and World oil price shocks are better predictors of both stock and real estate prices during the crisis period than in the expansion period.

Highlights

The stock and property markets which are the two major compositions of the asset market, are vital factors in the transmission mechanisms by which economic activity and the overall macroeconomic level of a country is influenced
This study examines the relationship between Asset prices (Stock and Real estate prices) and Macroeconomic variables in four selected African countries
An investigation into the effect of macroeconomic variables on the asset prices in this study is rested on the International Arbitrage Pricing Model (IAPM), which was propounded by Bilson, Brailsford, and Hooper (2004)

Summary

Introduction

The stock and property markets which are the two major compositions of the asset market, are vital factors in the transmission mechanisms by which economic activity and the overall macroeconomic level of a country is influenced. According to Carter and Barrett (2006), asset prices act very important roles in the economic policy and financial stability models. Some of these roles comprise of serving as platforms for providing vital information as regard to the market expectation and consumer‟s risk behaviors, serving as indices of productivity and acting as shocks that influence the economy. An increase in house prices may imply excess demand which in turn may lead to more construction and more residential investment. The movements in both residential and commercial investment may directly affect economic production

Methods

Results

Discussion

Conclusion