Asymmetric impact of multifarious exchange rate shocks on stock prices: Fresh insights from multiple thresholds nonlinear autoregressive distributed-lag approach

ABSTRACT

Exchange rate extreme shocks affect stock prices differently, depending on the sign and the magnitude of changes. This study, therefore, examines the asymmetric impact of multifarious exchange rate shocks on stock prices in sub-Saharan Africa between 1 March 2013 and 14 January 2023, using the novel, multiple thresholds nonlinear autoregressive distributed-lag (MTNARDL) model. This model estimates the effects of extremely small and extremely large positive and negative shocks in exchange rate on stock prices. The study partitioned the sample into pre-COVID-19 and COVID-19 era. The study’s outcome indicates: first, exchange rate shocks below 25th percentile affect stock prices positively but above the 25th percentile and below the upper quantiles (75th percentile) the effects is mixed; second, at the upper quantiles (75th percentile), both exchange rate depreciation and appreciation adversely affect the value of stocks; third, the link between the series is highly sensitive to global shocks; fourth, causality result upholds the flow-oriented model in four out of the six countries. The policy implications are: (i) the responses of stock prices to exchange rates changes are sensitive to the sign and size of the shock, as well as sensitive to global shocks. Consequently, specific policy recommendations have been suggested.

KEYWORDS:

• MTNARDL
• asymmetry
• stock price
• exchange rate
• multifarious shocks
• SSA

JEL Classifications:

• B41
• C32
• C52
• E22
• F21

Acknowledgement

Authors are grateful to two anonymous reviewers for their valuable comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Ethical approvalstatement

The article does not contain any studies with human participants or animal participants by any of the authors.

Data availability statement

The data that supports the findings of this study are available from the corresponding author upon reasonable request.