Abstract
The paper assesses the dynamic interaction between exchange rates and stock market volatility in
South Africa by making use of the generalised impulse response function obtained from a
bivariate VAR model. Volatility variables in the VAR system are obtained from a family of
GARCH models based on criteria such as covariance stationarity and leverage effects. The
findings of the paper show that foreign exchange conditional volatility responds positively to
volatility shocks to the equity market. Nonetheless, the response of the equity market conditional
volatility to volatility shocks to the foreign exchange market is short-lived and neutral for most of
the time horizon periods. The paper attributes this finding mainly to the extent of foreign
participation