IDEAS home Printed from https://ideas.repec.org/a/cvv/journ1/v2y2015i3p411-417.html

Dynamic Links between Exchange Rates and Stock Prices in Malaysia: An Asymmetric Cointegration analysis

Author

Listed:
  • Hamisu Sadi ALI
  • Umar MUKHTAR
  • Ganthi Selvi MANIAM

    (Universiti Putra Malaysia, Malaysia.)

Abstract

The present article used a monthly data and applied Enders and Siklos (2001) asymmetric cointegration analysis to examine the impact of exchange rates on stock prices in Malaysia for the period of 1999-2014. The result suggests that variables were cointegrated based on Engle-granger two step technique. Moving to threshold auto regressive (TAR) and momentumthreshold auto regressive (M-TAR) the finding reveals that based on the latter variables were asymmetrically cointegrated as null hypothesis of no cointegration was rejected at 1% significance level based on Enders and Siklos (2001), while the former shows that variables do not have long-run relationship and the speed of adjustment is symmetric. This signifies that increase in the prices of shares in Malaysian stock market could lead to Malaysian Ringgit appreciation over other major global currencies. The stocks will become more expensive and discourage foreign investors participation in the market which inhibits the influx of stable foreign capital into Malaysian financial system. The implication is that regulators should ensure that adequate and efficient policies are put in place in order to keep the Ringgit exchange rates at optimal level so as to enhance the participation of foreign investors and improve market competitiveness.

Suggested Citation

  • Hamisu Sadi ALI & Umar MUKHTAR & Ganthi Selvi MANIAM, 2015. "Dynamic Links between Exchange Rates and Stock Prices in Malaysia: An Asymmetric Cointegration analysis," Journal of Economics and Political Economy, EconSciences Journals, vol. 2(3), pages 411-417, September.
    • Handle: RePEc:cvv:journ1:v:2:y:2015:i:3:p:411-417
    as

    Download full text from publisher

    File URL: http://journals.econsciences.com/index.php/JEPE/article/download/357/555
    Download Restriction: no
    File URL: http://journals.econsciences.com/index.php/JEPE/article/view/357
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Frankel, Jeffrey A, 1979. "On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials," American Economic Review, American Economic Association, vol. 69(4), pages 610-622, September.
    2. R. Smyth & M. Nandha, 2003. "Bivariate causality between exchange rates and stock prices in South Asia," Applied Economics Letters, Taylor & Francis Journals, vol. 10(11), pages 699-704.
    3. Nieh, Chien-Chung & Lee, Cheng-Few, 2001. "Dynamic relationship between stock prices and exchange rates for G-7 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(4), pages 477-490.
    4. Raymond Donnelly & Edward Sheehy, 1996. "The Share Price Reaction of U.K. Exporters to Exchange Rate Movements: An Empirical Study," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(1), pages 157-165, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hamisu Sadi ALI & Umar MUKHTAR & Ganthi Selvi MANIAM, 2015. "Dynamic Links between Exchange Rates and Stock Prices in Malaysia: An Asymmetric Cointegration analysis," Journal of Economics and Political Economy, KSP Journals, vol. 2(3), pages 411-417, September.
    2. 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.
    3. Morales-Zumaquero, Amalia & Sosvilla-Rivero, Simón, 2018. "Volatility spillovers between foreign exchange and stock markets in industrialized countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 121-136.
    4. Tian, Maoxi & El Khoury, Rim & Alshater, Muneer M., 2023. "The nonlinear and negative tail dependence and risk spillovers between foreign exchange and stock markets in emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    5. Kabir, Mustafa & Masih, Mansur, 2019. "Portfolio diversification between exchange rates and islamic stocks: evidence from the USA, Euro area, Japan and Malaysia," MPRA Paper 100574, University Library of Munich, Germany.
    6. Andrew Phiri, 2020. "Structural changes in exchange rate-stock returns dynamics in South Africa: examining the role of crisis and new trading platform," Economic Change and Restructuring, Springer, vol. 53(1), pages 171-193, February.
    7. Malik, Farooq, 2021. "Volatility spillover between exchange rate and stock returns under volatility shifts," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 605-613.
    8. Paulo Ferreira & Marcus Fernandes da Silva & Idaraí Santos de Santana, 2019. "Detrended Correlation Coefficients Between Exchange Rate (in Dollars) and Stock Markets in the World’s Largest Economies," Economies, MDPI, vol. 7(1), pages 1-11, February.
    9. Andreas Andrikopoulos & Aristeidis Samitas & Konstantinos Kougepsakis, 2014. "Volatility transmission across currencies and stock markets: GIIPS in crisis," Applied Financial Economics, Taylor & Francis Journals, vol. 24(19), pages 1261-1283, October.
    10. Siew-Pong Cheah & Thian-Hee Yiew & Cheong-Fatt Ng, 2017. "A nonlinear ARDL analysis on the relation between stock price and exchange rate in Malaysia," Economics Bulletin, AccessEcon, vol. 37(1), pages 336-346.
    11. Mohsen Bahmani-Oskooee & Sujata Saha, 2019. "On the effects of policy uncertainty on stock prices," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(4), pages 764-778, October.
    12. Abdul Qayyum & A. R. Kemal, 2006. "Volatility Spillover between the Stock Market and the Foreign Market in Pakistan," Finance Working Papers 22216, East Asian Bureau of Economic Research.
    13. Zhao, Hua, 2010. "Dynamic relationship between exchange rate and stock price: Evidence from China," Research in International Business and Finance, Elsevier, vol. 24(2), pages 103-112, June.
    14. 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.
    15. Shaobo Long & Mengxue Zhang & Keaobo Li & Shuyu Wu, 2021. "Do the RMB exchange rate and global commodity prices have asymmetric or symmetric effects on China’s stock prices?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-21, December.
    16. Mira Nurmakhanova, 2019. "Exchange Rate and Stock Prices Interactions in Kazakhstan," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 7(2), pages 19-31.
    17. Lin, Jeng-Bau & Fu, Shan-Heng, 2016. "Investigating the dynamic relationships between equity markets and currency markets," Journal of Business Research, Elsevier, vol. 69(6), pages 2193-2198.
    18. Mehmet PEKKAYA & Ersin AÇIKGÖZ & Veli YILANCI, 2017. "Panel causality analysis between exchange rates and stock indexes for fragile five," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(611), S), pages 33-44, Summer.
    19. 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.
    20. Marcel Aloy & Mohamed Boutahar & Karine Gente & Anne Péguin-feissolle, 2010. "Fractional integration and cointegration in stock prices and exchange rates," Economics Bulletin, AccessEcon, vol. 30(1), pages 115-129.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cvv:journ1:v:2:y:2015:i:3:p:411-417. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bilal KARGI (email available below). General contact details of provider: https://journals.econsciences.com/index.php/JEPE .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.