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Dynamic linkage between real exchange rates and stock prices: Evidence from developed and emerging Asian markets

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  • Moore, Tomoe
  • Wang, Ping

Abstract

This paper investigates the sources of the dynamic relationship between real exchange rates and stock return differentials in relation to the US market for the developed and emerging Asian markets. We, first, derive the dynamic conditional correlation (DCC) of the two series, and then DCC is regressed on the trade balance and the interest rate differentials. In general, the trade balance is found to be a main determinant of the dynamic correlation for the Asian markets, whereas the interest rate differential is the driving force for the developed markets. The latter seems to reflect the high capital mobility.

Suggested Citation

  • Moore, Tomoe & Wang, Ping, 2014. "Dynamic linkage between real exchange rates and stock prices: Evidence from developed and emerging Asian markets," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 1-11.
    • Handle: RePEc:eee:reveco:v:29:y:2014:i:c:p:1-11
    DOI: 10.1016/j.iref.2013.02.004
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    More about this item

    Keywords

    Real exchange rates; Stock return differentials; Dynamic conditional correlation; Trade balance; Interest rate differentials;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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