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Detrended Correlation Coefficients Between Exchange Rate (in Dollars) and Stock Markets in the World’s Largest Economies

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  • Paulo Ferreira

    (VALORIZA—Research Center for Endogenous Resource Valorization, 7300-110 Portalegre, Portugal
    Instituto Politécnico de Portalegre, 7300-110 Portalegre, Portugal
    CEFAGE-UE, IIFA, Universidade de Évora, Largo dos Colegiais 2, 7000 Évora, Portugal)

  • Marcus Fernandes da Silva

    (Instituto Federal da Bahia, R. Emídio dos Santos, s/n—Barbalho, Salvador—BA 40301-015, Brazil)

  • Idaraí Santos de Santana

    (Secretaria de Educação do Estado da Bahia, 3a Avenida Centro Administrativo da Bahia, 550—5 a —Centro Administrativo da Bahia, Salvador—BA 41745-004, Brazil)

Abstract

The purpose of this paper is to verify the long-range correlation between the stock markets of the largest economies in the world and the respective exchange rate with the USD. According to theory, a negative correlation is expected, meaning that an increase in the return of one of the assets will cause a decrease in the return of the other. Using detrended cross-correlation and detrended moving average cross-correlation analyses and the respective correlation coefficients, we analysed this possibility, analysing behaviour according to different time scales. Our main results showed that in European markets, the exchange rate does not have a significant effect. This significant effect just occurs in the case of the Indian stock market, while in the case of the Japanese one, the relationship is positive. Japanese authorities’ monetary policy could be the reason for this different result.

Suggested Citation

  • 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.
    • Handle: RePEc:gam:jecomi:v:7:y:2019:i:1:p:9-:d:202872
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