South African "Rand"/U.S. "Dollar" Exchange Rate Variability, Parity Theories, and Investment Rules

Stephen S. Kyereme ()
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Stephen S. Kyereme: Webster University

The African Finance Journal, 2008, vol. 10, issue 2, 43-59

Abstract: Parity theories are used to study the "rand" / "dollar" rate. Interest rate parity results suggest that in about 20% to 26.7% of cases, investing in USA would have yielded higher interest returns than investing in South Africa. In 73.3% to 80% of cases, investing in South Africa would have yielded more interest returns. The PPP theory suggests rand undervaluation relative to the dollar, thereby justifying revaluation / appreciation in all cases, while the interest rate parity theory suggests rand undervaluation in 73.3% to 80% of cases and overvaluation in 20% to 26.7% of cases. Cointegration tests suggest significant (at 5% but not at 1%) long run PPP, which is consistent with the high correlation (0.97) between the two countries’ price levels.

JEL-codes: F31 G11 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:afj:journl:v:10:y:2008:i:2:p:43-59

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