n African Finance Journal - South African "rand" / U.S. "dollar" exchange rate variability, parity theories, and investment rules
|Article Title||South African "rand" / U.S. "dollar" exchange rate variability, parity theories, and investment rules|
|© Publisher:||AfricaGrowth Institute|
|Journal||African Finance Journal|
|Author||Stephen S. Kyereme|
|Publication Date||Jan 2008|
|Pages||43 - 59|
|Keyword(s)||F31 and G11|
Parity theories are used to study the "rand" / "dollar" rate. Interest rate parity results suggest that in about 20% to 26.7% of cases, investing in USA would have yielded higher interest returns than investing in South Africa. In 73.3% to 80% of cases, investing in South Africa would have yielded more interest returns. The PPP theory suggests rand undervaluation relative to the dollar, thereby justifying revaluation / appreciation in all cases, while the interest rate parity theory suggests rand undervaluation in 73.3% to 80% of cases and overvaluation in 20% to 26.7% of cases. Cointegration tests suggest significant (at 5% but not at 1%) long run PPP, which is consistent with the high correlation (0.97) between the two countries? price levels.
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