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Investigating the dynamic relationships between equity markets and currency markets

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  • Lin, Jeng-Bau
  • Fu, Shan-Heng

Abstract

This study investigates the panel dynamic relationships between equity markets and currency markets for the four Asian economies over the period January 2001–December 2013 using a panel Granger-causality approach. Over the past 20years, Japan, South Korea, Singapore, and Taiwan have integrated themselves together with a high degree of globalization in economic and financial relations. Evidences support the flow-oriented hypothesis of exchange rates that indicates that exchange rates influence stock prices positively via the current account for Japan, and document the stock-oriented hypothesis of exchange rates that states that exchange rates affect stock prices negatively via the capital account for the other three countries. The findings for the short-run and long-run panel Granger-causality tests reveal that bi-directional causality exists between the two variables. The empirical results provide important policy implications for the monetary authorities and the mutual fund managers in the equity markets.

Suggested Citation

  • Lin, Jeng-Bau & Fu, Shan-Heng, 2016. "Investigating the dynamic relationships between equity markets and currency markets," Journal of Business Research, Elsevier, vol. 69(6), pages 2193-2198.
    • Handle: RePEc:eee:jbrese:v:69:y:2016:i:6:p:2193-2198
    DOI: 10.1016/j.jbusres.2015.12.029
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    Cited by:

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    3. Muhammad Aftab & Abid Ali & Scott W. Hegerty, 2021. "Foreign exchange market pressure and stock market dynamics in emerging Asia," International Economics and Economic Policy, Springer, vol. 18(4), pages 699-719, October.

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