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Interdependence Between Foreign Exchange Markets and Stock Markets in Selected European Countries

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Author Info
Mevlud Islami (University of Wuppertal/European Institute for International Economic Relations (EIIW))

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Abstract

In this analysis the interdependence between foreign exchange markets and stock markets for selected accession and cohesion countries is discussed. This includes basic theoretical approaches. Monthly data for the nominal stock market indices and nominal exchange rates are used, where Ireland, Portugal, Spain, Greece, Poland, Czech Republic, Slovenia, and Hungary are included in the analysis. From the cointegration analysis and VAR analysis both long-term links and short-term links for Poland are identified. Conversely, for Slovenia, Hungary, Ireland, and Spain merely short-term links resulted. Surprisingly, the direction of causation is unambiguously from the stock market index to the exchange rate for all six countries considered.

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Publisher Info
Paper provided by Universitätsbibliothek Wuppertal, University Library in its series Schumpeter Discussion Papers with number sdp08007.

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Length: 29 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:bwu:schdps:sdp08007

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Web page: http://elpub.bib.uni-wuppertal.de

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Related research
Keywords: Exchange Rate; Stock Markets; Cointegration; VAR; European Integration;

Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
F31 - International Economics - - International Finance - - - Foreign Exchange
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Stavarek, Daniel, 2004. "Stock Prices and Exchange Rates in the EU and the USA: Evidence of their Mutual Interactions," MPRA Paper 7297, University Library of Munich, Germany. [Downloadable!]
  2. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December. [Downloadable!] (restricted)
  3. Horst Entorf & Gösta Jamin, 2003. "German Exchange Rate Exposure at DAX and Aggregate Level, International Trade, and the Role of Exchange Rate Adjustment Costs," Darmstadt Discussion Papers in Economics 126, Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology). [Downloadable!]
    Other versions:
  4. James MacKinnon, 1990. "Critical Values for Cointegration Tests," University of California at San Diego, Economics Working Paper Series 90-4, Department of Economics, UC San Diego. [Downloadable!]
  5. Froot, Kenneth A & Stein, Jeremy C, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1191-217, November. [Downloadable!] (restricted)
    Other versions:
  6. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July. [Downloadable!] (restricted)
  7. Field, Alexander J., 1984. "A New Interpretation of the Onset of the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 44(02), pages 489-498, June. [Downloadable!]
  8. Oliver Holtemöller, 2005. "Uncovered interest rate parity and analysis of monetary convergence of potential EMU accession countries," International Economics and Economic Policy, Springer, vol. 2(1), pages 33-63, 06. [Downloadable!] (restricted)
  9. Bahmani-Oskooee, Mohsen & Sohrabian, Ahmad, 1992. "Stock Prices and the Effective Exchange Rate of the Dollar," Applied Economics, Taylor and Francis Journals, vol. 24(4), pages 459-64, April.
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