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Causal Relationship between Stock Prices and Exchange Rates

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Abstract

This paper investigates the nature of the causal linkage between stock markets and foreign exchange markets in Australia, Canada, Japan, Switzerland, and UK from 1992:1 to 2005:12. Recently developed cointegration tests are employed and no evidence of a long-run relationship between the variables is found. Three variations of the Granger causality test are carried out and causality from exchange rates to stock prices is found for Canada, Switzerland, and United Kingdom; weak causality in the other direction is found only for Switzerland. The Hiemstra-Jones test is used to examine possible nonlinear causality and the results indicate causality from stock prices to exchange rates in Japan and weak causality of the reverse direction in Switzerland.

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Bibliographic Info

Paper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number 2010_01.

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Date of creation: Jan 2010
Date of revision: Jan 2010
Handle: RePEc:mcd:mcddps:2010_01

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Web page: http://www.uom.gr/index.php?tmima=3

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Keywords: Granger Causality; Stock Prices; Exchange Rates; Hiemstra-Jones Test; Nonparametric Causality.;

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Citations

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Cited by:
  1. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2013. "Some thoughts on accurate characterization of stock market indexes trends in conditions of nonlinear capital flows during electronic trading at stock exchanges in global capital markets," MPRA Paper 49921, University Library of Munich, Germany.
  2. Guglielmo Maria Caporale & John Hunter & Faek Menla Ali, 2013. "On the Linkages between Stock Prices and Exchange Rates: Evidence from the Banking Crisis of 2007-2010," Discussion Papers of DIW Berlin 1289, DIW Berlin, German Institute for Economic Research.
  3. Kabir, Sarkar Humayun & Masih, Mansur, 2014. "Dynamic Integration of Domestic Equity Price, Foreign Equity Price and Macroeconomic Indicators: Evidence from Malaysia," MPRA Paper 57007, University Library of Munich, Germany.

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