IMPACT OF RESOURCE PRICES AND THE EXCHANGE RATE ON RESOURCE COMPANY SHARE PRICES LISTED ON JSE LTD

Abstract

It is believed that resource companies which derive their earnings from selling resources predominantly in foreign currency should be significantly exposed to both the exchange rate and the resource price. The aim of this research was to better explain the exposures facing resource companies listed on the Johannesburg Stock Exchange by including both the exchange rate as well as the underlying resource prices. The study made use of ARIMA modelling to remove each data series relationship with time and correlation analysis to establish if a significant relationship existed. The study was conducted over a three, five and ten year period. The findings indicate that the resource index had a significant relationship with the exchange rate over all three periods and that 53% of resource companies had a significant relationship over the 5 and 10 year periods, this dropped to 35% over the 3 year period. As for the underlying resource prices, it was found that the resource index had a significant relationship over all 3 periods and that 82% of the firms in the study had a significant relationship over the 5 and 10 periods and 76% over the 3 year period.