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

Author

Listed:
  • Alam, Md. Mahmudul

    (Universiti Utara Malaysia)

  • Uddin, Gazi Salah
  • Taufique, Khan Md. Raziuddin

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

Suggested Citation

  • Alam, Md. Mahmudul & Uddin, Gazi Salah & Taufique, Khan Md. Raziuddin, 2019. "The Relationships between Exchange Rates and Stock Prices: Empirical Investigation from Johannesburg Stock Exchange," OSF Preprints fvdqc, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:fvdqc
    DOI: 10.31219/osf.io/fvdqc
    as

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    References listed on IDEAS

    as
    1. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    2. Ercan Balaban, 1995. "Day of the week effects: new evidence from an emerging stock market," Applied Economics Letters, Taylor & Francis Journals, vol. 2(5), pages 139-143.
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