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Causality between stock and foreign exchange markets in Bangladesh

Author

Listed:
  • Abdullah M. Noman
  • Sarkar Humayun Kabir
  • Omar K.M.R. Bashar

Abstract

Purpose - The purpose of this paper is to uncover the direction of causality between foreign exchange market and stock market in Bangladesh, where financial markets are yet in their early development stage. Design/methodology/approach - The paper employs the Granger causality tests using monthly data spanning over two decades. In order to study possible existence of causality in the data, sub‐samples are constructed in addition to the full sample. Findings - The overall results indicate absence of any causality running between foreign exchange market and stock market in the full sample and in the sub‐sample created around the stock market crash. Originality/value - This study would be the first of its kind using Granger causality approach to test whether change in exchange rates lead to changes in the stock market in Bangladesh, and vice‐versa. The paper also offers some implications of the findings which could be of significant value to policy makers.

Suggested Citation

  • Abdullah M. Noman & Sarkar Humayun Kabir & Omar K.M.R. Bashar, 2012. "Causality between stock and foreign exchange markets in Bangladesh," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 29(3), pages 174-186, July.
    • Handle: RePEc:eme:sefpps:v:29:y:2012:i:3:p:174-186
    DOI: 10.1108/10867371211246849
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    References listed on IDEAS

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    Cited by:

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    2. Mutiu A. Oyinlola & Tirimisyu F. Oloko, 2018. "Exchange rate dynamics and stock market performance in Nigeria: Evidence from a Nonlinear ARDL Approach," Working Papers 059, Centre for Econometric and Allied Research, University of Ibadan.

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