Abstract
The purpose of this study is to determine factors causing share price volatility within the South African financial sector. The reason is that the financial sector plays a significant role in the growth and development of the South African economy, and any negative performance within the financial sector will negatively impact the growth of the South African economy.
The study adopts a panel regression approach to determine factors causing share price volatility within the South African financial sector. The study considers 49 listed companies from the financial sector of the Johannesburg Stock Exchange (JSE), as well as factors from the internal environment: dividends paid, dividend yield, earnings per share, and factors from the external environment: gross domestic product (GDP), repo rate, inflation, money supply and exchange rate.
It was discovered that dividends paid, earnings per share, GDP, repo rate, inflation and money supply have a statistically significant and positive relationship with the share price of the South African financial sector, and that they are the factors causing share price volatility within the financial sector. The dividend yield was found to be the only variable that negatively influences share prices, but was also proven to be statistically insignificant.
These results are significant for the South African financial sector regulators as well as market participants, particularly, investors, analysts, portfolio managers and fund managers, in order to understand factors influencing the volatility of share prices. The reason is that share price volatility often has an influence on their decision making, in terms of investment strategy, risk minimisation, as well as maximising investment returns.