EXCHANGE RATE MOVEMENT AND STOCK RETURNS IN MOST CAPITALISED ECONOMIES IN SUB-SAHARAN AFRICA

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Ibukun Ogunsanya¹ & Temitope Wasiu Adamson^2*

¹University of Hull Business School, Hull, UK.
²School of Basic and Advanced Studies, Lagos State University, Lagos, Nigeria

*Corresponding author’s email: adamsontope2002@yahoo.com

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Abstract

In line with the extant literature that financial markets do mutually cooperate, this study investigates the nexus between exchange rate movement and stock returns in the six most capitalised economies in SubSaharan Africa (SSA). The study ascertains the relevance of the traditional or portfolio adjustment theory to sub-Saharan Africa’s financial markets. The study accounted for heterogeneity and dependence among the cross-sections and applied the Driscoll and Kraay and the Feasible Generalised Least Square econometric procedures on Bloomberg (2023) monthly datasets spanning between 2000:1 and 2022:12. The study findings reveal the nexus between the variables flows from stock returns to the exchange rate in SSA and some consistency with the argument of the portfolio adjustment theory. Estimates of DumitrescuHurlin's (2012) Granger non-causal test also reveal a unidirectional causal relationship between both variables in the most capitalised economies in SSA. Macroeconomic policies that vitiate the limitations of both variables in SSA are recommended.

Keywords:  Exchange Rate Movement, Stock Returns, Traditional Approach, Portfolio Adjustment Approach, sub-Saharan Africa