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The Causal Relationship Between Stock Prices And Exchange Rates: Panel Granger Causality Evidence From Emerging And Developed Markets

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  • Önder BÜBERKÖKÜ

Abstract

The financial literature has paid increasing attention to the relationship between stock prices and exchange rates. This study examines the relationship between these variables using a newly developed heterogeneous panel Granger causality test robust to cross-sectional dependency for 21 emerging and 22 developed markets. Panel results show a unidirectional causality relationship between the variables for both emerging and developed markets, running from stock prices to exchange rates. Additionally, in most cases, country-specific results also support the panel results, indicating the same unidirectional causality for 13 emerging markets (approximately 62 %) and 15 developed markets (approximately 68 %). The opposite link is found for only one emerging market. As such, we conclude that the stock-oriented model is valid for most of emerging and developed markets. That is, in both emerging and developed markets, a change in stock markets causes a change in exchange rate markets in most cases. These findings have important policy implications.

Suggested Citation

  • Önder BÜBERKÖKÜ, 2019. "The Causal Relationship Between Stock Prices And Exchange Rates: Panel Granger Causality Evidence From Emerging And Developed Markets," Journal of Academic Value Studies, Journal of Academic Value Studies, vol. 3(15), pages 39-49, Month: Ja.
    • Handle: RePEc:atj:journl:v:3:y:2019:i:15:p:39-49
    DOI: 10.13934/1999.393
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    More about this item

    Keywords

    panel Granger causality test; stock prices; exchange rates;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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