Abstract
This study asses the asymmetric relationship between the stock market returns and the exchange rate in South Africa. The aim of the study is to ascertain whether interest rates can be used to influence equity returns and how the equity returns will respond. The methodology used is the nonlinear autoregressive distributive lag (NARDL) model using monthly data for the period January 2005 - December 2019. The Johannesburg Stock Exchange (JSE) and South African rand against US dollar exchange rate are used in this study. The JSE is split into the three sectors namely Industrial, Resources, and Financial sector. The effect of a change in exchange rate is investigated in all the three sectors and the all share index. The results indicate that there is an asymmetric impact of exchange rate on each of the different sectors of the JSE. The asymmetry can be observed both with currency appreciation and depreciation, the magnitude and timing of the effect is different for each sector at different times. The results suggest that investors can use exchange rate and interest rate forecasts to make educated investment choices between the different sectors as they all react differently to a change in the exchange rate.