Abstract. We applied asymmetric cointegration approachtoinvestigate the impacts of stock prices on exchange rates in South Africa using monthly data from January 1980 to May 2014. The empirical finding shows that the two macroeconomic variables are cointegrated using traditional Engle-Granger approach. While TAR model shows no element of cointegration, MTAR model revealsthat there is long-run relationshipbetween the variables and they are asymmetrically cointegrated as signifies by both F-equality and F-joint respectively. Using Enders & Siklos (2001) table we reject null hypothesis of no cointegration at 5% significance level. This means that stock prices influences exchange rates in South Africa and the speed of adjustment is non-linear, when share price changes exchange rates equally changes but not in the same proportion with that of share prices. The policy implication is that the authorities in this country should focus more on stabilizing their exchange rates in relation to other major global currencies more especially American dollar. When the value of Rand continues to increase the economy will be less competitive internationally at the same time the value of the stocks might be unattractive even to international investors.Keywords. Stock prices, Exchange rates, Cointegration, Asymmetric, TAR, MTAR.JEL. D51, H54, O24
