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Foreign exchange market pressure and stock market dynamics in emerging Asia

Author

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  • Muhammad Aftab

    (COMSATS University Islamabad)

  • Abid Ali

    (COMSATS University Islamabad)

  • Scott W. Hegerty

    (Northeastern Illinois University)

Abstract

This study investigates connections between currency and stock markets for the Asian emerging economies using a novel approach that considers exchange rate management. We build an index of exchange market pressure and examine its association with stock market returns using a DCC-GARCH model, as well as Granger causality tests. We find a negative time-varying association between exchange market pressure and stock market returns. Moreover, there is bidirectional causality between these variables in many cases. China and India have much less of a relationship than do smaller neighbors such as Korea, the Philippines, Singapore, and Thailand. This research draws important implications.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:iecepo:v:18:y:2021:i:4:d:10.1007_s10368-021-00501-w
    DOI: 10.1007/s10368-021-00501-w
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    More about this item

    Keywords

    Exchange market pressure; Stock prices; Emerging economies; Asia;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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