‘Macro-finance determinants and the stock market development: evidence from Morocco’

ABSTRACT

This paper focuses on the role of the macroeconomic outlook in explaining the returns volatility from 1998 to 2018 in Morocco. Our findings show that the inclusion of low-frequency macroeconomic information can improve the explaining ability, particularly for the long-term variance component. Information in some indicators which represent forward-looking variables (i.e. international economic situation, interest rates, exchange rates and inflation) seem to take into account the current economic situation, and remain useful in the Moroccan stock market development. Nevertheless, the historical realized volatility exceeds all models with macro-finance data in terms of explaining the long-term volatility. Therefore, it is noteworthy that investors and decision makers are considered to be more affected by the stock results, namely the past returns performance and the historical volatility. In general, modeling the long-term volatility component has a great potential and is very useful for portfolio selection, hedging decisions and macroeconomic risk management.

KEYWORDS:

• Macro-finance indicators
• GARCH-MIDAS
• informational efficiency
• Casablanca Stock Exchange (CSE)
• macroeconomic risk management

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 For more details concerning the efficient market hypothesis and the informational efficiency in African stock markets, see Jefferis & Smith, 2005; Smith, 2008; Smith & Dyakova, 2014.

2 The Global Financial Centers Index 26 report (GFCI 26), published by Z/Yen Group and the China Development Institute. p. 4. https://www.longfinance.net/media/documents/GFCI_26_Report_2019.09.19_v1.2_O3YMNF0.pdf

3 Casablanca Finance City (CFC). www.casablancafinancecity.com

4 International Monetary Fund (2018). Morocco: Third Review Under the Arrangement Under the Precautionary and Liquidity Line (PLL)-Press Release; Staff Report; and Statement by the Executive Director of Morocco, Country Report No. 18/58: https://www.imf.org/en/Publications/CR/Issues/2018/03/12/Morocco-Third-Review-Under-the-Arrangement-Under-the-Precautionary-and-Liquidity-Line-PLL-45674

5 Casablanca Finance City, Morocco. https://casablancafinancecity.com/cfc/?lang=en

6 Rand Merchant Bank (RMB) Report: ‘Where to invest in Africa 2020’.

https://www.rmb.co.za/landing/where-to-invest-in-africa

7 The 2018 report of the United Nations Conference on Trade and Development – UNCTAD, on the world investment. https://unctad.org/en/PublicationsLibrary/wir2018_overview_en.pdf

8 Casablanca Stock Exchange (CSE), the 2018 Annual Report: Stock Market in 2018. http://www.casablanca-bourse.com/BourseWeb/UserFiles/File/rapports_annuels/2018/Annual_Report_UK_2018.pdf?csrt=13009215068903789117

9 http://depf.finances.gov.ma/tableaux-de-bord/

10 Exchange Office of Morocco. The 2017 annual report on External Trade. https://www.oc.gov.ma/sites/default/files/2018-11/Rapport%20BC_2017.pdf

11 Casablanca Stock Exchange (CSE), the 2018 Annual Report: Evolution of the main indicators of the MENA region. p. 34.

http://www.casablanca-bourse.com/BourseWeb/UserFiles/File/2019/juin/RA_VF_2018_0619.pdf

12 Exchange rate euro (EUR) to MOROCCAN DIRHAM (MAD).

13 Exchange rate US Dollar (USD) to MOROCCAN DIRHAM (MAD).

14 Exchange Office of Morocco. https://www.oc.gov.ma/fr/publications#wow-book/

15 Bank Al-Maghrib, the Moroccan central bank; Financial Stability Report (2013). pp. 109–113. www.bkam.ma/content/download/18623/148885/RSF%20Fr%202013.pdf.

16 International Monetary Fund, 3 August 2012. https://www.imf.org/external/np/sec/pr/2012/pr12287.htm

17 Aftermath of the Arab Spring in North Africa, Atlantic Council, Rafik Hariri center for the Middle East. ISSUE BRIEF, October 2016.

18 Bank Al-Maghrib, the Moroccan central bank, March 2020: ‘Widening of the fluctuation band of the dirham to ± 5%’ http://www.bkam.ma/en/Press-releases/Press-releases/2020/Widening-of-the-fluctuation-band-of-the-dirham-to-5

19 The theory of the black swan is developed by the statistician Nassim Nicholas Taleb, in particular in his essay ‘The black swan: The impact of the highly improbable (see Taleb, 2007)’. According to this theory, a black swan is an unpredictable event that has a low probability of occurring (called a ‘rare event’ in probability theory) and, if it does occur, has far-reaching and exceptional consequences. Taleb first applied this theory to finance. In finance, rare events are often undervalued in terms of price.