Interrelations among stock prices of South Africa and the United States and the rand/dollar exchange rate
Abstract
This paper seeks to examine the dynamic short-term causal relations and the long-term
equilibrium 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 study identifies a long-run relationship among the rand/US$
exchange rate and the stock prices of South Africa and the United States. It was also observes
that there is a causal relationship from the stocks in the United States to the rand/US$ exchange
rate. In the short run however, the interactions among the variables are quite modest. The result
of the study has implications for investors, policy makers and researchers.