Abstract
M.Com. (Finance)
In 2008, South Africa’s public enterprise Eskom began rolling power cuts due to not meeting
the demand of the electricity power mainly produced by coal energy. With little research been
done on financial share return volatility caused by coal energy shocks; in this study the impact
of inconsistent electricity supply and coal energy prices shocks on JSE share returns volatility
is examined. The monthly data period between 2005 and 2015 is used as this represents the
peak period during which the country experienced significant energy supply disruption. To
capture the share return volatility, GARCH-mean and EGARCH models are used while to
analyse the impact of coal energy shocks on share returns; a Vector Auto-regression model
is used. The results show that different JSE sector returns and their volatility react differently
to shocks caused by coal prices and inconsistent electricity supply.
When examining share returns, finance and industrial sector share returns initially rises for
both coal price and inconsistent electricity supply shocks while mining sector share returns
initially declines from a coal price shock only. For the industrial and mining sectors; a positive
energy shock caused by coal price or inconsistent electricity supply implies lower volatility in
the following period compared to the negative energy shock respectively. While for the
agriculture sector, only a positive energy shock caused by coal price implies a lower volatility
in the following period compared to the negative energy shock. However, it is found that these
results are not dependent on initial energy shocks but are affected by energy shocks which
happened two or three months prior. Furthermore, coal price shocks are likely to have a longer
impact and less immediate change in the share return volatility in comparison to inconsistent
electricity supply shocks.