Bivariate Causality between Exchange Rates and Stock Prices on Major Asian Countries
AbstractThis paper studies the cointegration and the bivariate causality relationship between exchange rates and stock prices on the seven Asian countries badly hit by the Asian Financial Crisis. Our empirical results show that, before the 1997 Asian Financial Crisis, all countries, except the Philippines and Malaysia, experience no evidence of Granger causality between the exchange rates and the stock prices. However, the causality but not the cointegration between the capital and financial markets appear to become strong during the Asian Financial Crisis period. Surprisingly, after the 911-terrorist-attack, the causality relationship between the two markets returns to normal as in the pre-Asian-crisis period and the cointegration relationship weakens between exchange rates and stock prices. Thus, we conclude that (1) Asian Financial Crisis has a bigger and more direct impact on the causality relationship between stock prices and currency exchanges in Asian markets and the 911-terrorist-attack basically has no impact on the causality relationship between the two markets; and (2) the financial and capital markets have become more mature and efficient after the crisis.
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Bibliographic InfoPaper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 10/05.
Length: 36 pages
Date of creation: 02 Jun 2005
Date of revision:
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Postal: Department of Economics, Monash University, Victoria 3800, Australia
Web page: http://www.buseco.monash.edu.au/eco/
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Find related papers by JEL classification:
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-17 (All new papers)
- NEP-IFN-2009-07-17 (International Finance)
- NEP-SEA-2009-07-17 (South East Asia)
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