The Relationships between Exchange Rates and Stock Prices: Empirical Investigation from Johannesburg Stock Exchange

Alam, M.M., Uddin, M.G.S., and Taufique, R. 2011. The Relationships between Exchange Rates and Stock Prices: Empirical Investigation from Johannesburg Stock Exchange, Inventi Rapid: Emerging Economics, Vol. 2011(3)

9 Pages Posted: 27 Mar 2017

See all articles by Md. Mahmudul Alam

Md. Mahmudul Alam

Universiti Utara Malaysia

Gazi Uddin

Presidency University

Khan Taufique

Presidency University

Date Written: March 27, 2017

Abstract

This study seeks evidence supporting the existence of market efficiency and exchange rate sensitivity on stock prices in the Johannesburg stock exchange (JSE). The sample includes the daily price indices of all securities listed on the JSE, and the exchange rate of the USD/Rand for the period since January 2000 to December 2004. The results from the unit root test, the ADF test and the causality test at the Granger sense provide evidence that the Johannesburg stock exchange (JSE) is informationally efficient. It has a long run comovement with exchange rate, and long run equilibrium or steady state. Hence, in JSE there is a strong possibility that foreign direct investors and forex market traders cannot influence and gain abnormal extra benefits by using exchange rate mechanism or by using exchange rate to forecast stock prices in the market. So, JSE is semi-strong form efficient. Through cointegration test, this paper gives more insight on the concept of market efficiency and the reliability of the results. These results are important to security analysts, investors, and security regulatory exchange bodies in policy making decision to improve the market conditions

Keywords: Exchange Rate, Sock Prices and Granger Causality

JEL Classification: C22, G14

Suggested Citation

Alam, Md. Mahmudul and Uddin, Gazi and Taufique, Khan, The Relationships between Exchange Rates and Stock Prices: Empirical Investigation from Johannesburg Stock Exchange (March 27, 2017). Alam, M.M., Uddin, M.G.S., and Taufique, R. 2011. The Relationships between Exchange Rates and Stock Prices: Empirical Investigation from Johannesburg Stock Exchange, Inventi Rapid: Emerging Economics, Vol. 2011(3). Available at SSRN: https://ssrn.com/abstract=2941528

Md. Mahmudul Alam (Contact Author)

Universiti Utara Malaysia ( email )

Sintok, Kedah
Malaysia

Gazi Uddin

Presidency University ( email )

86/1 College Street
Kolkata, West Bengal 700073
India

Khan Taufique

Presidency University ( email )

86/1 College Street
Kolkata, West Bengal 700073
India

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