Modelling of Daily Price Volatility of South Africa Property Stock Market Using GARCH Analysis

Abstract

The study examined the volatility of the daily market price of listed property stocks on the Johannesburg Stock Exchange (JSE) for a 10year period (2008-2017). The study used daily prices from January 2, 2008 to December 29, 2017 of twelve (12) quoted property companies out of the twenty-seven (27) listed on Johannesburg Stock Exchange (SA REIT Association, 2020). The study computed the average daily price of the selected (12) property stocks and was used as a proxy for the daily market price for the property stock market in the analysis. The study modelled SA-REIT market price volatility using generalised autoregressive conditional heteroskedasticity (GARCH 1, 1). The GARCH model reported that the previous day's information of both the daily market price (ARCH term) and the volatility (GARCH term) have a positive and significant (p<.05) effect on the current day’s daily market price volatility in the property stock market. The result of the model implies that investment in the property stock market is strongly driven by positive news on daily price than a negative shock; meaning that South Africans' investors are more sensitive and exhibit a sharp response to good news on daily market price than bad news when thinking of investing in listed property company shares on Johannesburg Stock Exchange.