Analysing Interest Rate and Exchange Rate Volatility on South African Banks’ Stock Returns Considering the COVID-19 Pandemic

Reabetswe Ledwaba (), Danny Mokatsanyane (), Suné Ferreira-Schenk (), Johnny Jansen van Rensburg () and Ruschelle Sgammini ()
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Reabetswe Ledwaba: North West University
Danny Mokatsanyane: North West University
Suné Ferreira-Schenk: North West University
Johnny Jansen van Rensburg: North West University
Ruschelle Sgammini: North West University

Acta Universitatis Danubius. OEconomica, 2022, issue 18(6), 312-329

Abstract: This paper analysed the impact of interest rate and exchange rate volatility on banking sector stock returns in South Africa considering the Covid-19 pandemic. This paper employed daily secondary data for the period 01 January 2011 - 19 August 2021. The OLS and GARCH approaches were utilized to analyse the relationship between the variables. The results indicate that the interest rates have a positive and significant relationship with bank stock returns as four out of five banks showed positive coefficients in the OLS estimator. Moreover, a high foreign exchange rate leads to a negative bank stock returns as the coefficients from the OLS estimator were negative. The ARCH and GARCH models’ results indicate that bank stock returns are determined by their past volatility. The study has managerial implications for the banking sector because interest rate and exchange rate volatility increase the risks associated with the returns, implying that banks should consider various hedging strategies in mitigating these risks. Therefore, banks should consider various hedging strategies while the investors could attentively consider monetary policies during the investment decision process.

Keywords: Interest Rate; Exchange Rate; Volatility; Covid-19; South Africa (search for similar items in EconPapers)
Date: 2022
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