Stock market performance and foreign exchange market in Egypt: Does the 25th January revolution matter?

Ahmed El-Masry, Osama Badr

Research output: Contribution to journalArticle

Abstract

This paper examines the causal relationship between stock market performance and foreign exchange market in Egypt over the period 2009-2016. The study period is divided into two sub-periods: pre and post January 25th Egyptian revolution (ER). The reason is to examine how this revolution affects the
causal relationship between the two markets' performance. In this study, the daily basis data are used to enable good and effective observation changes in the foreign exchange rate and stock market performance over time. Stock market indexes and stock market capitalization are used as proxies for stock market performance. Further, the Egyptian pound to US$ exchange rate is used as a measure for foreign exchange market performance. The study analysis is done in stages. The first is to check the variables' stationarity for the pre and post revaluation. The second is to examine the cointegration among the variables. The third is to run vector autoregression (VAR) estimates, after which VAR Granger-causality tests are employed. The results show that the data are not stationary at their levels but stationary in their first difference level while there is no cointegration in the long-run among the variables in both sub-periods. Further, findings indicate that, in the pre-January 25th revolution period, there is a significant causal relationship between the foreign exchange market and stock market indexes and a significant causal relationship between stock market performance (measured by market capitalization) and exchange rate at the 1% level. However, in the post January 25th revolution period, the study does not find a significant causal relationship between foreign exchange market and stock
market indexes and capitalization. The results have important implications for investors, companies and policy makers.
Original languageEnglish
Pages (from-to)(In-press)
JournalInternational Journal of Emerging Markets
Volume(In-press)
Early online date12 Jun 2020
DOIs
Publication statusE-pub ahead of print - 12 Jun 2020

Bibliographical note

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Keywords

  • Stock market performance
  • Foreign exchange market
  • Vector autoregression estimates (VAR)
  • Granger causality
  • Variance decomposition (VD)
  • impulse response function (IRF)
  • Egyptian revolution (ER)
  • E44
  • O47
  • O16
  • C58

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