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On the Causality between Exchange Rates and Stock Prices: A Note

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  • Hatemi-J, Abdulnasser
  • Irandoust, Manuchehr

Abstract

This study uses a new Granger non-causality testing procedure developed by Toda and Yamamoto (1995) to contribute to the debate on exchange rates and stock prices in Sweden. It examines a possible causal relation between these variables in a vector autoregression (VAR) model. The results show that Granger causality is unidirectional running from stock prices to effective exchange rates. The results also reveal that an increase in Swedish stock prices is associated with an appreciation of the Swedish krona. Special attention is given to the estimation methodology and the lag choosing process. Copyright 2002 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Suggested Citation

  • Hatemi-J, Abdulnasser & Irandoust, Manuchehr, 2002. "On the Causality between Exchange Rates and Stock Prices: A Note," Bulletin of Economic Research, Wiley Blackwell, vol. 54(2), pages 197-203, April.
  • Handle: RePEc:bla:buecrs:v:54:y:2002:i:2:p:197-203
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    Cited by:

    1. Razvan STEFANESCU & Ramona DUMITRIU, 2009. "Impact of the Global Crisis on the Financial Linkages between the Stock Market and the Foreign Exchange Market from Romania," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 2, pages 255-270.
    2. repec:eee:phsmap:v:495:y:2018:i:c:p:225-244 is not listed on IDEAS
    3. Tsai, I-Chun, 2012. "The relationship between stock price index and exchange rate in Asian markets: A quantile regression approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(3), pages 609-621.
    4. Moore, Tomoe & Wang, Ping, 2014. "Dynamic linkage between real exchange rates and stock prices: Evidence from developed and emerging Asian markets," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 1-11.
    5. Tran Quang Huy, 2016. "The Linkage Between Exchange Rates and Stock Prices: Evidence from Vietnam," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(7), pages 363-373, July.
    6. Abdulnasser Hatemi-J & Eduardo Roca, 2005. "Exchange rates and stock prices interaction during good and bad times: evidence from the ASEAN4 countries," Applied Financial Economics, Taylor & Francis Journals, vol. 15(8), pages 539-546.
    7. D. Sornette & W. -X. Zhou, 2004. "Non-parametric Determination of Real-Time Lag Structure between Two Time Series: the "Optimal Thermal Causal Path" Method," Papers cond-mat/0408166, arXiv.org.
    8. Christos Kollias & Stephanos Papadamou & Costas Siriopoulos, 2016. "Stock markets and effective exchange rates in European countries: threshold cointegration findings," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 6(2), pages 215-274, August.
    9. Huzaimi Hussain & Venus Khim-Sen Liew, 2004. "Causal Relationships Between Exchange Rates And Stock Prices In Malaysia And Thailand During The 1997 Currency Crisis Turmoil," International Finance 0405015, EconWPA.
    10. Bonga-Bonga, Lumengo & Gnagne, Pascal Xavier, 2017. "The impact of exchange rate volatility on capital flows in BRICS economies," MPRA Paper 84773, University Library of Munich, Germany.
    11. Sinha, Pankaj & Kohli, Deepti, 2013. "Modeling exchange rate dynamics in India using stock market indices and macroeconomic variables," MPRA Paper 45816, University Library of Munich, Germany.
    12. Ho, Liang-Chun & Huang, Chia-Hsing, 2015. "The nonlinear relationships between stock indexes and exchange rates," Japan and the World Economy, Elsevier, vol. 33(C), pages 20-27.
    13. Stefanescu, Razvan & Dumitriu, Ramona, 2013. "Impact of the foreign exchange rates fluctuations on returns and volatility of the Bucharest Stock Exchange," MPRA Paper 47229, University Library of Munich, Germany, revised 04 Apr 2013.
    14. Rashid, Abdul, 2007. "Exchange rates or stock prices, what causes what: A firm level empirical investigation," MPRA Paper 27209, University Library of Munich, Germany.
    15. Christos Kollias & Nikolaos Mylonidis & Suzanna-Maria Paleologou, 2012. "The nexus between exchange rates and stock markets: evidence from the euro-dollar rate and composite European stock indices using rolling analysis," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(1), pages 136-147, January.
    16. Tsagkanos, Athanasios & Siriopoulos, Costas, 2013. "A long-run relationship between stock price index and exchange rate: A structural nonparametric cointegrating regression approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 106-118.

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