Evoluci´ on del concepto de log´ıstica

Having found evidence of cointegration between CPI and each common stock index we estimate the long-run cointegrating relationship. The results are shown in table 5.7

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Table 5.7 cointegration regression

Variable Coefficient Std. Error t-

Statistic Prob.

All Share Index CPI 2.215330 0.108680 20.38396 0.0000

C 0.353064 0.195736 1.803776 0.0728 Basic Materials Index CPI 1.417052 0.192577 7.358346 0.0000 C 1.704628 0.346838 4.914774 0.0000 Consumer Goods Index CPI 3.069518 0.139065 22.07247 0.0000 C -1.276011 0.250461 -5.094652 0.0000 Consumer Services Index CPI 3.625513 0.145915 24.84670 0.0000 C -2.993978 0.262798 -11.39271 0.0000 Financials Index CPI 1.811517 0.118484 15.28912 0.0000 C 1.006245 0.213393 4.715452 0.0000

Health Care Index

CPI 3.482751 0.126963 27.43118 0.0000 C -2.928166 0.228664 -12.80551 0.0000 Industrials Index CPI 2.332455 0.138787 16.80605 0.0000 C 0.103591 0.249959 0.414431 0.6790 Technology Index CPI 1.861650 0.333323 5.585129 0.0000 C 0.900711 0.600324 1.500375 0.1351 Telecommunications CPI 2.778137 0.217001 12.80242 0.0000 C -1.423208 0.390825 -3.641549 0.0003

Cointegration estimation was conducted with CPI as the dependent variable in each equation and the respective common stock index as the independent variable. The results of the cointegration estimation show that in the period between February 2000 and December 2016

51 all the JSE sector indices are found to have a positive and significant relationship with CPI. The All Share Index is found to have a positive relationship with CPI. The (Fisher) coefficient d shows that a 1% change in inflation results in a 2.22% change in the all share index. These results are similar to results found by Alagidede and Panagiotidis (2010) who found that a 1% change in inflation results in a 2.264% change in the All Share index and are also consistent with the tax augmented Fisher hypothesis, which postulates that the percentage change in common stock prices is expected to be greater than 1 to compensate investors for losses due to any taxes. The results suggest that generally common stocks in South Africa are a hedge for inflation thus during the period of study investors would be fully compensated for changes in inflation. This result suggests that for a given change in inflation investors can expect the All Share index to double over the long run

Examining the various disaggregated industry indices, the Consumer service index and the Health Care index have the greatest overall reaction to a change in inflation, with a 1% change in inflation resulting in a 3.62% and 3.48% change in the index returns respectively. Furthermore, the results suggest that common stocks related to the consumer-focused industries have the greatest elasticity with respect to changes in CPI, suggesting that investors expect an increase in consumer prices to translate to increased profitability in consumer related common stocks.

The telecommunications index and the industrial index also have a strong reaction to changes in inflation that is greater than the overall market as represented by the All Share index, with a 1% change in inflation resulting in a 2.78% and 2.33% change in the index respectively. On the other hand, the Technology, industrial and financial index all have a Fisher coefficient less than that of the All Share index.

The Basic Materials service index has the smallest overall reaction to changes in inflation, with a 1% change in inflation resulting in a 1.41 % change in returns. These results are consistent with Luintel and Paudyal (2006) study that found that for the UK the Consumer Goods sector common stocks offered the best hedge against inflation while Basic Material was the only index to actually have no long-run relationship with inflation. The low reaction could be attributed to other external factors such as international materials prices having a strong effect on the value and profits of common stocks in the Basic Materials indices, such firms that are highly correlated with international variables will be less affected by domestic price changes. It’s noted that these results are in contradiction with the results of Ang et al. (2012) who when

52 testing individual stock inflation betas of stocks on the NYSE found that the highest betas were from stocks in the Basic Materials sector. Ang et al. (2012) also found when testing the S&P industry indices that the Basic Materials index was the only industry to have a positive beta with inflation. It can be argued that the reasons for the contradiction are related to the fact that Ang et al. (2012) examined the short-term relationship, whereas this study along with the UK study (Luintel and Paudyal, 2006) above focused on the long-term relationship. This suggests that common stocks in the Basic Materials industry may have a comparatively stronger reaction with inflation in the short run but over the long run the effects of inflation are smaller when compared to the other industries. In this study, the short run relationship will further be explored in the next section using the VECM impulse response.

Overall the evidence from the long run cointegration regression suggests that in times of high inflation investors are most compensated for changes in inflation in common stocks relating to the Consumer Services and Consumer Goods sectors, but that in general, all sectors of the JSE provide some hedge for inflation. The varying coefficients also provide evidence of the heterogeneity. That is investors are compensated for changes in inflation if they invest in specific industries rather than in the All Share index

To further examine the relationship between common stocks and CPI the next section will examine the VECM constructed from the data.

5.5 Vector Error correction model