The exchange rates volatilities impact on the stock and real estate markets in South Africa

Purpose Understanding which market to invest in for a well-diversified portfolio is fundamental in economies that are highly vulnerable to fluctuations in exchange rates. Extant literature that has considered phenomenon hardly juxtapose the markets. The purpose of this study is to examine the effects of exchange rate volatility on the Stock and Real Estate market of South Africa. The essence is to determine whether the fluctuations in the exchange rate influence the markets prices differently. Design/methodology/approach The Generalised Autoregressive Conditional Heteroskedasticity [GARCH (1.1)] model was used in establishing the effect of exchange rate volatility on both markets. This study used monthly South African data between 2000 and 2020. Findings The results of this study showed that increased exchange rate volatility increases stock market volatility but decreases real-estate market volatility, both of which revealed weak influences from the exchange rates volatility. Practical implications This study has implication for policy in using the exchange rate as a policy tool to attract foreign portfolio investment. The weak volatility transmission from the exchange rate market to the stock and real estate market indicates that there is prospect for foreign investors to diversify their investments in these two markets. Originality/value This study investigated which of the assets market, stock or housing market do better in volatile exchange rate conditions in South Africa.