Untangling the non-linear causal nexus between exchange rates and stock prices: New evidence from the OECD countries
AbstractPurpose – The purpose of this paper is to examine the relationship between stock prices and exchange rates in 12 OECD countries. Design/methodology/approach – The authors examine the nexus of stock prices and exchange rates for 12 OECD countries by using the vector error correction model, the bounds testing methodology and linear and non-linear Granger causality methods. Findings – The empirical results substantiate that a long-run level equilibrium relationship among the exchange rates and stock prices exists in only seven out of twelve countries. The results of the linear causality tests indicate that significant short-run and long-run causal relationships exist between the two financial markets. The results of the tests for non-linear Granger causality suggest that unidirectional and bidirectional non-linear causal relationships exist between stock prices and exchange rates among these OECD countries. Originality/value – The findings from this paper suggest the causal relationships between stock prices and exchange rates are not only linear, but also non-linear. JEL classification: G1, F31, C32
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Journal of Economic Studies.
Volume (Year): 39 (2012)
Issue (Month): 2 (May)
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Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
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