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Stock Market Returns and Exchange Rates in Botswana

African Journal of Economic Review

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Title Stock Market Returns and Exchange Rates in Botswana
 
Creator Lesotho, OK
Motlaleng, GR
Ntsosa, MM
 
Subject Stock market returns, Exchange rates, Botswana.
 
Description This paper investigates the effect of bilateral exchange rates on stock market  returns in the Botswana Stock Exchange (BSE) measured by the domestic company  index (DCI). To examine whether this effect exists or not, Johansen cointegration  test, Vector Error Correction model (VECM), Granger causality test, Impulse  Response Function and Variance Decomposition are employed. The paper employs  monthly data from 2001:M1-20014:M11. The empirical results indicate that there  exists a long run equilibrium relationship between the stock market returns and  exchange rates in Botswana. These findings corroborate those found by Mishra  (2004), Phylaktis and Ravazzo (2005), Sohail and Hussain (2009) who explored  the relationship in developed and emerging markets. In this paper, a negative  relationship was found to exist between the stock market returns and the US dollar, British Pound and South African Rand. The Euro and the Japanese Yen showed a  positive relationship. The findings of the paper also revealed that the speed of  adjustment in the VECM is significant and relatively slow. The causality test  indicated a unidirectional causality running from exchange rates to the stock  market returns. The significant causality relationship was established between the  British Pound, US Dollar, Japanese Yen and the Domestic Company Index. The  causality results are consistent with those found by Alagidede et.al (2010) and  Granger et.al (1998). Therefore, the evidence from this study implies that bilateral exchange rates have a significant effect on the performance of stock prices.Keywords: Stock market returns, Exchange rates, Botswana.
 
Publisher Centre for Economics and Community Economic Development
 
Contributor —
 
Date 2016-05-24
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.ajol.info/index.php/ajer/article/view/136038
 
Source African Journal of Economic Review; Vol 4, No 2 (2016); 16-42
1821-8148
 
Language eng
 
Relation http://www.ajol.info/index.php/ajer/article/view/136038/125529
 
Rights The copyright belongs to: African Journal of Economic Review, Centre for Economics and Community Economic Development, The Open University of Tanzania, P.O.Box 23409, Dar es salaam, Tanzania