Asymmetric Volatility Effects between the Real Exchange Rate and Stock Prices in South Africa

Ayanda Sikhosana () and Goodness Aye ()
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Ayanda Sikhosana: Department of Economics, University of Pretoria, South Africa
Goodness Aye: Department of Economics, University of Pretoria, Pretoria, South Africa

No 201721, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper analyses the volatility spillover effects between the real exchange rate and stock prices in South Africa. An EGARCH model is estimated using monthly data to examine the relationship. The results show that there is no long-run relationship between the two markets, with asymmetric bi-directional volatility spillover effects between the two markets in the short-run. These findings suggest that while information in one market can be used to forecast changes in the other, these financial assets should not be included in the same portfolio when diversifying risk.

Keywords: Volatility; stock market; risk; exchange rates; EGARCH (search for similar items in EconPapers)
JEL-codes: C58 F31 G17 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2017-03
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201721

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