On the Dynamic Relation between Stock Prices and Exchange Rates
AbstractIn this study we apply recent advances in time-series analysis to examine the intertemporal relation between stock indices and exchange rates for a sample of eight advanced economies. An error correction model (ECM) of the two variables is employed to simultaneously estimate the short-run and long-run dynamics of the variables. The ECM results reveal significant short-run and long-run feedback relations between the two financial markets. Specifically, the results show that an increase in aggregate domestic stock price has a negative short-run effect on domestic currency value. In the long run, however, increases in stock prices have a positive effect on domestic currency value. On the other hand, currency depreciation has a negative short-run and long-run effect on the stock market.
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Bibliographic InfoArticle provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 19 (1996)
Issue (Month): 2 (Summer)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0270-2592
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