Abstract
This study observes the performance of selected South African stock market industries in relation to exchange rate movements over a twenty-year period (June 1999 - June 2019). The ever-increasing integration between exchange rate markets and stock markets with the widespread practice of hedging and diversification policies led to testing the extent of influence between the two different markets. While various studies have been conducted on the relationship between the exchange rate and the stock market, this study explored the relationship between exchange rates and selected stock market indices. The quantitative research approach was used to achieve the objectives of the study. The study specifically sought to understand the performance of selected South African stock market industries in response to the ZAR/USD exchange rate over a period of twenty years. The Engle-Granger technique and Granger Causality were employed to review the performance and dynamic links between the exchange rate and stock market indices. The observed study disclosed that there is a statistically significant long-run relationship between the two different markets. Furthermore, causality was found to be significantly varied across different industries. It was also clear that the South African stock market is well segmented through well-varied findings from impulse responses to exchange rate shocks. The conclusion was that, while the South African stock market industries are well segmented, investment managers should diversify or hedge their risk domestically and vice versa. The inferences of the discovery are mainly significant to portfolio managers when developing their hedging policies and diversifying their portfolios in order to decrease their unsystematic risk.
M.Com. (Finance)