The Impact of Exchange Rate on Stock Market: The Case of Egypt

This thesis has investigated the impact of exchange rate on stock market for the case of Egypt over the 1976-2020 period. Economic growth, inflation and interest rate have been added to the model as control variables, to reduce the potential for omitted variable bias. All the data have been sourced from the World Development Indicators of the World Bank. Both the Augmented Dickey-Fuller and Phillips-Perron unit root tests showed that all the variables are integrated of order one. Johansen cointegration test revealed a long-run equilibrium relationship between the variables. The vector error-correction model estimated the long-run coefficients of the variables which indicate that currency exchange rate has a statistically-significant positive impact on stock market in Egypt. The impact of economic growth on stock market was found to be negative, while interest rate and inflation have no statistically-significant impacts on stock market. The annual speed of adjustment of stock market towards its long-run equilibrium value, following a short-run shock, was found to be 68.6%. Granger causality tests revealed that none of the variables Granger-causes another in both the long run and short run.