Linkages between Stock Prices and Exchange Rates in the EU and the United States
AbstractThis paper investigates the nature of the causal relationship between stock prices and effective exchange rates in four old EU-member countries (Austria, France, Germany, and the UK), four new EU-member countries (Czech Republic, Hungary, Poland, and Slovakia) and in the USA. Both the long-run and short run causalities between these variables are explored using monthly data. The paper also tries to answer the question whether the linkages between analyzed economic variables are of the similar intensity and direction in the old and new part of the EU and how has been the relationship changing over the analyzed period. The results show much stronger causality in countries with developed capital and foreign exchange markets (old EU-member countries and the USA) than in the new-comes. Evidence also suggests more powerful long-run as well as short-run causal relations in the period 1993-2003 than during 1970- 1992. Causalities seem to be predominantly unidirectional with a direction running from stock prices to exchange rates. Finally, we also detected the real effective exchange rate as a more suitable variable than nominal effective exchange rate for such kind of analysis.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0406006.
Length: 32 pages
Date of creation: 15 Jun 2004
Date of revision:
Note: Type of Document - pdf; pages: 32
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stock prices; exchange rate; cointegration; Granger causality;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-06-22 (All new papers)
- NEP-CFN-2004-06-21 (Corporate Finance)
- NEP-EEC-2004-06-21 (European Economics)
- NEP-IFN-2004-06-22 (International Finance)
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