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The Relationship between Stock Prices and Exchange Rates: The Focus on Dar Es Salaam Stock Exchange (DSE)

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  • Fredynandy M. John
  • Zakayo S. Kisava

Abstract

This paper aims to examine the existing relationship between the prices of different stocks traded in the Dar es Salaam Stock Exchange (DSE) and the Tanzanian Shillings ¨C United States dollar exchange rates (TZS/USD). In this study, we use the daily data sets covering a period of six years from August 15, 2011 through July 28, 2017 making 1455 observations. Vector Autoregressive (VAR) ¨C Granger Causality model is employed accompanied with several tests conducted on the variables and the model itself. The findings conclude that, there is a short-term association between Stock Prices (SP) and Exchange Rates (ExR). Additionally, Stock Prices Granger Causes Exchange Rates as evidenced by Granger Causality and the Impulse test. These findings are supported by the fact that shocks in the Exchange Rates have no effect in the Stock Prices. This could mean that an investor can invest in short term at the DSE.

Suggested Citation

  • Fredynandy M. John & Zakayo S. Kisava, 2018. "The Relationship between Stock Prices and Exchange Rates: The Focus on Dar Es Salaam Stock Exchange (DSE)," Business and Economic Research, Macrothink Institute, vol. 8(1), pages 1-12, March.
    • Handle: RePEc:mth:ber888:v:8:y:2018:i:1:p:1-12
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    Cited by:

    1. Faizal Reza & Titin Ruliana & Imam Nazarudin Latif & Adisthy Shabrina Nurqamarani, 2020. "Causality Between Exchange Rate and Stock Prices: Evidence From ASEAN-5 Countries," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 10(2), pages 17-33.

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    More about this item

    Keywords

    Exchange rate; Granger Causality; Stock price; Impulse test;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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