Exchange Rates and Stock Prices in the Long Run and Short Run
AbstractUsing the ARDL bounds testing approach to cointegration this paper provides evidence of a stable long run relationship between the exchange rate and stock prices for the UK, Japan and Swiss currencies with respect to the US dollar. The resultant error correction models suggest a positive relationship between stock prices and the exchange rate, which in an out-of-sample forecast outperforms the random walk. We compare these results with a similar model incorporating interest rates, suggested by Solnik (1987), however this does not in general improve the results.
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Bibliographic InfoPaper provided by University of Bath, Department of Economics in its series Department of Economics Working Papers with number 15973.
Date of creation: 2009
Date of revision:
stock prices; forecast; cointegration; exchange rates;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-31 (All new papers)
- NEP-CBA-2009-10-31 (Central Banking)
- NEP-FOR-2009-10-31 (Forecasting)
- NEP-MON-2009-10-31 (Monetary Economics)
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.:
- Chen, Yu-chin & Rogoff, Kenneth, 2003. "Commodity currencies," Journal of International Economics, Elsevier, vol. 60(1), pages 133-160, May.
- Bruce Morley, 2007. "The monetary model of the exchange rate and equities: an ARDL bounds testing approach," Applied Financial Economics, Taylor and Francis Journals, vol. 17(5), pages 391-397.
- Smith, C. E., 1992. "Stock markets and the exchange rate: A multi-country approach," Journal of Macroeconomics, Elsevier, vol. 14(4), pages 607-629.
- Apergis, Nicholas & Zestos, George K. & Shaltayev, Dmitriy S., 2012. "Do market fundamentals determine the Dollar–Euro exchange rate?," Journal of Policy Modeling, Elsevier, vol. 34(1), pages 1-15.
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