Stock Return and Exchange Rate Changes Effect: Case of Tunindex

Abstract

This study aims to examine the macroeconomic environment effect on Tunisian stock market index (5 days a weak Tunindex) from 01/02/2011 to 19/11/2019. GARCHM-X type models are used to estimate volatility of the daily returns series of 2191 observations having no significant weakday’s effect. Once using interaction variables, GARCHM-XS model results capture the effect of macro-economic instability via exchange rate growth and exchange rate volatility post 2016. Then macroeconomic environment have to be favourable to ensure growth in the Tunisian stock market. And, policies aimed to reduce exchange rate volatility are a necessity for Tunisian stock market.

Keywords: Tunisia, Tunindex volatility, GARCHM-XS model, Exchange rate, Economic Stability.

DOI: 10.7176/EJBM/14-7-05

Publication date: April 30^th 2022