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On the relation between exchange rates and stock prices: a non-linear ARDL approach and asymmetry analysis

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  • Mohsen Bahmani-Oskooee

    (The University of Wisconsin-Milwaukee)

  • Sujata Saha

    (The University of Wisconsin-Milwaukee)

Abstract

The relationship between stock prices and exchange rates has received a great deal of attention. In investigating the link between the two variables most studies have concluded that the relation is short run and the two variables have no long run relationship. Furthermore, all existing studies have assumed that the effects of exchange rate changes on stock prices are symmetric. In this paper we use monthly time-series data from 24 countries and non-linear ARDL method to show that the effects of exchange rate changes on stock prices could be asymmetric. The same is true when we consider the effects of changes in stock prices on the exchange rate. Introducing nonlinearity yields relatively more support for asymmetric cointegration compared to symmetric cointegration.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Sujata Saha, 2018. "On the relation between exchange rates and stock prices: a non-linear ARDL approach and asymmetry analysis," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(1), pages 112-137, January.
    • Handle: RePEc:spr:jecfin:v:42:y:2018:i:1:d:10.1007_s12197-017-9388-8
    DOI: 10.1007/s12197-017-9388-8
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    7. Yutaka Kurihara & Akio Fukushima & Shinichiro Maeda, 2020. "Can Bitcoin’S Price Be A Predictor Of Stock Prices?," Noble International Journal of Economics and Financial Research, Noble Academic Publsiher, vol. 5(4), pages 50-55, April.
    8. Salah A. Nusair & Jamal A. Al-Khasawneh, 2022. "On the relationship between Asian exchange rates and stock prices: a nonlinear analysis," Economic Change and Restructuring, Springer, vol. 55(1), pages 361-400, February.
    9. Afees A. Salisu & Kazeem Isah & Nnenna Ogbonnaya‐Orji, 2022. "A firm level analysis of asymmetric response of U.S. stock returns to exchange rate movements," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1220-1239, January.
    10. 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.
    11. Mohammad Enamul Hoque & Soo-Wah Low & Mohd Azlan Shah Zaidi & Lain-Tze Tee & Noor Azlan Ghazali, 2023. "Asymmetric and Lag Effects of Industry Risk Factors on the Malaysian Oil and Gas Stocks," SAGE Open, , vol. 13(3), pages 21582440231, July.
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    Keywords

    Exchange Rates; Stock Prices; Nonlinear ARDL; Asymmetry;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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