IS THE EFFECT OF THE EXCHANGE RATE ON STOCK PRICES SYMMETRIC OR ASYMMETRIC? EVIDENCE FROM SUDAN

Omer Ahmed Sayed Mohamed,Faiza Omer Mohammed Elmahgop

doi:10.32479/ijefi.9268

Omer Ahmed Sayed Mohamed, Faiza Omer Mohammed Elmahgop

Open Access

https://doi.org/10.32479/ijefi.9268

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Abstract

This study investigates asymmetry in the effect of the exchange rate on the Sudanese stock market prices. We applied the Nonlinear ARDL model by Shin et al. (2014) to monthly data for the period from September 2003 to September 2019, using inflation, money supply, and Murabaha profit margin as control variables. No study found that test the nonlinearity effect of the exchange rate on stock prices in Sudan. This study proposed to fill this gap by examining the impact of the exchange rate of Sudanese Pound nonlinearity on the stock prices in the Khartoum Stock Exchange. The results show that the exchange rate has asymmetric effects on stock prices in both the short run and long run. The policy implication of this paper is that modeling the exchange rate and stock prices symmetrically may affect negatively the effectiveness of economic planning. Thus, NARDL emerges as a more suitable model than the ARDL model for investigating such a relationship.

Highlights

Investigating the relationship between exchange rate and stock prices is of great importance to researchers and policymakers in the developed and developing economies
The results reported in Section (4), where we analyzed to reveal that exchange rate changes have asymmetric effects on stock prices
This study proposed to fill this gap by examining the impact of the exchange rate in Sudanese Pound nonlinearity on the stock prices in the Khartoum Stock Exchange

Summary

Introduction

Investigating the relationship between exchange rate and stock prices is of great importance to researchers and policymakers in the developed and developing economies. Research on this relation includes a large number of studies that investigate the link for different countries since the early 1970s. Researching this link has gained substantial consideration with the development of financial markets, the appearance of flexible currency market policies, and the new systems of foreign exchange. The flow-oriented model and the stock-oriented model While the former assumes that the casualty runs from the exchange rate to stock prices, the latter assumes the opposite. With the increasing recognition of nonlinearity in the exchange rate effect recently, there are some studies based on asymmetric models, such as Shin et al (2014), Cheah et al (2017), Ahmet et al (2018), Oyinlola and Tirimisyu (2018), Benli et al (2019), Yacouba and Halil (2019), Habibi and Chin (2019)

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