Macroeconomic and behavioural drivers of sectoral liquidity on the JSE under changing market conditions

This study examines the dynamic relationship between investor sentiment, inflation, and interest rates on sector-level liquidity within the Johannesburg Stock Exchange (JSE) from 2007 to 2024, using a Markov Switching Model to capture regime shifts between bull and bear markets. A key contribution is the application of the South African Fear and Greed Index as a behavioural proxy for sentiment and the exploration of the dynamics of sectoral liquidity under changing conditions. Results show liquidity is regime‑dependent: defensive sectors such as retail and financials remain resilient in bull markets, while consumer discretionary, consumer staples and telecommunications sectors suffer illiquidity in downturns. Inflation and interest rates exert regime‑dependent effects across industries, while sentiment influences liquidity in ways that vary with market conditions. Findings highlight sector‑specific vulnerabilities with implications for policy, regulation, and asset allocation.