Macroeconomic uncertainty and ETF return volatility in South Africa: Implications for sustainable passive investment strategies
Abstract
Purpose: This study investigates the effect of macroeconomic uncertainty, namely inflation, money supply, long-term interest rates and the real effective exchange rate, on the return volatility of four South African exchange-traded funds listed on the Johannesburg Stock Exchange, addressing a gap in emerging-market ETF volatility literature. Methodology: Monthly data from November 2010 to December 2025 were analysed using univariate GARCH, GJR-GARCH, and E-GARCH models, with model selection guided by the Schwarz information criterion and robustness confirmed via ARCH-LM, unit root, and Nyblom stability tests. Results: All four ETF indices exhibit ARCH effects and volatility clustering; for three of the four ETFs, positive return shocks increase volatility more than negative shocks of equal magnitude, and inflation, money supply, and long-term interest rate growth significantly raise volatility only for the STXSWX index. Theoretical contribution: The paper extends the largely spillover-focused literature on South African ETF volatility by isolating the direct macroeconomic drivers of volatility, offering an emerging-market counterpoint to studies concentrated on developed markets. Practical implications: Findings suggest that passive investors and fund managers should treat the STXSWX index with caution during periods of macroeconomic instability and factor asymmetric shock behaviour into portfolio rebalancing decisions. Sustainable Development Goals (SDGs): SDG 8: Decent Work and Economic Growth; SDG 9: Industry, Innovation and Infrastructure; SDG 10: Reduced Inequalities