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Causal Relationship between Stock Prices and Exchange Rates

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  • Alagidede, Paul
  • Panagiotidis, Theodore
  • Zhang, Xu

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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File URL: http://hdl.handle.net/1893/2096
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Bibliographic Info

Paper provided by University of Stirling, Division of Economics in its series Stirling Economics Discussion Papers with number 2010-05.

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Date of creation: Feb 2010
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Handle: RePEc:stl:stledp:2010-05

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Postal: Division of Economics, University of Stirling, Stirling, Scotland FK9 4LA
Phone: +44 (0)1786 467473
Fax: +44 (0)1786 467469
Web page: http://www.econ.stir.ac.uk/
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Related research

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

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Citations

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Cited by:
  1. 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.
  2. 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.

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