The Relationship Between Stock Prices and Exchange Rates: An Empirical Study on Emerging Markets
AbstractThis study aims to determine whether the traditional or portfolio approach is relevant for developing countries, by using the relationship between stock prices and exchange rates. For this purpose, cointegration (Pesaran et al., 2001) and causality tests (Toda Yamamoto, 1995) are used to examine the relationship between stock prices and exchange rates using monthly data from 13 developing countries. There is a negative relationship between the variables in the long-run, in 6 countries. There is a casual relationship in 8 countries, for 5 countries there is uni-directional causality running from stock prices to exchange rate, for 3 countries there is bi-directional causality between the variables. These findings can be interpreted as the relevance of the portfolio approach in the developing countries examined
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Bibliographic InfoArticle provided by Banking Regulation and Supervision Agency in its journal Journal of Banking and Financial Markets.
Volume (Year): 1 (2007)
Issue (Month): 1 ()
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Exchange Rates; Stock Prices; Bounds Test; Toda Yamamoto Causality;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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