Stock Exchange Fungibility and Exchange Rate Volatility in Zimbabwe

Upenyu Sakarombe and Rudo Marimbe-Makoni

MPRA Paper from University Library of Munich, Germany

Abstract: Investors, policymakers, and Economists have debated whether high volatility in the parallel exchange rate in Zimbabwe was driven by stock exchange fungibility or not. This study investigated the interaction between the stock exchange fungibility market and the parallel exchange rate market. The study utilised the Granger Causality, Cointegration Test, and the Engle-Granger Error Correction Model to determine the short-run, long-run relationships and speed of adjustment between the variables. Stock exchange fungibility was found to granger-cause exchange rate volatility implying a Portfolio Balance Approach Model. The bearish market activities would chase away investors, so they would sell their shares, convert their monies into foreign currency to turn to the alternative bullish market where shares are fungible. This would lead to the depreciation of the local currency. The results also showed evidence of cointegration with a perfect long-run speed of adjustment towards the equilibrium.

Keywords: stock market; fungibility; exchange rate volatility (search for similar items in EconPapers)
JEL-codes: F21 F3 F31 F37 F38 F4 F42 G1 G11 (search for similar items in EconPapers)
Date: 2020, Revised 2020
New Economics Papers: this item is included in nep-afr and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Economics and Political Sciences (JEPS) 2.1(2020): pp. 26-37

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:102464

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