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

Author

Listed:
  • Ayanda Sikhosana

    (Department of Economics, University of Pretoria, South Africa)

  • Goodness C. Aye

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

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.

Suggested Citation

  • Ayanda Sikhosana & Goodness C. Aye, 2017. "Asymmetric Volatility Effects between the Real Exchange Rate and Stock Prices in South Africa," Working Papers 201721, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201721
    as

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    More about this item

    Keywords

    Volatility; stock market; risk; exchange rates; EGARCH;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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