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On the Dynamic Relation between Stock Prices and Exchange Rates

Listed author(s):
  • Ajayi, Richard A
  • Mougoue, Mbodja
Registered author(s):

    In this study we apply recent advances in time-series analysis to examine the intertemporal relation between stock indices and exchange rates for a sample of eight advanced economies. An error correction model (ECM) of the two variables is employed to simultaneously estimate the short-run and long-run dynamics of the variables. The ECM results reveal significant short-run and long-run feedback relations between the two financial markets. Specifically, the results show that an increase in aggregate domestic stock price has a negative short-run effect on domestic currency value. In the long run, however, increases in stock prices have a positive effect on domestic currency value. On the other hand, currency depreciation has a negative short-run and long-run effect on the stock market.

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    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 19 (1996)
    Issue (Month): 2 (Summer)
    Pages: 193-207

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    Handle: RePEc:bla:jfnres:v:19:y:1996:i:2:p:193-207
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