The Causal Relationship between Exchange Rates and Stock Price Levels in South Africa

Lelani Coetzee () and Goodness Aye ()
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Lelani Coetzee: Department of Economics, University of Pretoria, South Africa
Goodness Aye: Department of Economics, University of Pretoria, Pretoria, South Africa

No 201722, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper studies the causal relationship between the exchange rate and stock prices and the effect of the financial crisis on this relationship. The results show that exchange rate and stock prices were unrelated prior to the crisis, yet the interdependence between these markets has increased since the crisis as there is now unidirectional Granger causality from stock prices to the exchange rate. It further confirms that the five aforementioned variables exhibit two long-run cointegrating relationships. Stock prices and the exchange rate are negatively correlated - an increase in stock prices thus leads to an appreciation of the exchange rate.

Keywords: Exchange rate; stock price; long run; causality (search for similar items in EconPapers)
JEL-codes: C32 F31 G01 G15 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2017-03
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201722

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