South African Journal of Economic and Management Sciences
On-line version ISSN 1015-8812
OCRAN, Matthew Kofi. South Africa and United States stock prices and the Rand/Dollar exchange rate. S. Afr. j. econ. manag. sci. [online]. 2010, vol.13, n.3, pp. 362-375. ISSN 1015-8812.
This paper seeks to examine the dynamic causal relations between the two major financial assets, stock prices of the US and South Africa and the rand/US$ exchange rate. The study uses a mixed bag of time series approaches such as cointegration, Granger causality, impulse response functions and forecasting error variance decompositions. The paper identifies a bi-directional causality from the Standard & Poor's 500 stock price index to the rand/US$ exchange rate in the Granger sense. It was also found that the Standard & Poor's stock price index accounts for a significant portion of the variations in the Johannesburg Stock Exchange's All Share index. Thus, while causality in the Granger sense could not be established for the relationship between the price indices of the two stock exchanges it can argued that there is some relationship between them. The results of the study have implications for both business and Government.
Keywords : Exchange rate; cointegration; stock price; impulse response; variance decomposition and Granger causality.