The Impact of Exchange Rates on Stock Market Performance: Evidence from the Egyptian Stock Exchange

Abstract

This study assess the causal connection between the currency pairing of the USD versus the Egyptian Pound) USD/EGP) and stock market activity in Egypt during the short term using quantitative data for each day from 2015–2025. The study utilize logarithmic return data for both the daily currency exchange rate and the 30 stock index (EGX 30) on Egypt's stock exchanges. Causation and association between variables are detected with standard time series analysis methods: the Augmented Dickey-Fuller (ADF) test for unit root; Phillips-Perron (PP) for unit root; Johansen for long-run relationship between two variables; and the VAR, Granger Causality tests, plus Impulse Response Functions (IRFs), to analyze the short-run dynamics of the stock market and the foreign exchange rate. There is no evidence of long-run cointegration between the foreign exchange rate and equity market performance in our analysis based on the long-run Johansen cointegration tests. Conversely, the Granger Causality test supports the proposition that there exists a unidirectional link from stock returns to initial changes in/removal from exchange rates look for additional supporting evidence; that the stock market provides an indication of future movements in foreign exchange rates. These findings perhaps are valuable indicators for both investors and policymakers with respect to forecasting and managing risk.