The reaction of the Egyptian stock market to recurring devaluations: an event study approach

Abstract

PurposeThis paper examines the reaction of the Egyptian stock market to two substantial devaluations of the Egyptian pound (EGP) in 2022 and tests the informational efficiency of the Egyptian market.Design/methodology/approachThe paper uses the event study framework to analyze the significance and direction of abnormal returns of the leading index of the Egyptian stock market (EGX30) on and around the devaluation days. It employs both the constant mean model and the market model to estimate the normal returns of the EGX30. Additionally, the paper uses data on two equity indices, one global and one for emerging markets, as benchmarks for normal returns.FindingsThe paper finds that the Egyptian stock market experienced significant positive abnormal returns on the devaluation days of the EGP in March and October of 2022, indicating a positive market reaction to the devaluation. Furthermore, evidence suggests that the Egyptian market may not be informationally efficient as significant positive abnormal returns were observed two weeks before and two weeks after the devaluation day, suggesting news leaks and delayed reactions, respectively.Originality/valueThis study is the first to examine the impact of the recent two devaluations of the EGP in 2022 on the Egyptian stock market. It complements existing literature by analyzing the immediate market reaction to two consecutive devaluations in an African country. Furthermore, the paper evaluates the efficiency of the Egyptian market in processing information related to exchange rates.

Relating Mutual Funds Performance & Stock Market Performance: Evidence from Egyptian Exchange (EGX)

“…However, stock market efficiency is formulated through efficiency of those companies, institutions, and financial instruments that exist inside the financial market (Trabelsi Mnif, 2015). (Elroukh, 2024& Hong et al, 2021 also insists that stock markets efficiency is considered as one of controversial topics that arise among researchers interested in finance & investment discipline. Although it is not a new topic, its results differ from one market to another, or even for the same market from one period to another.…”