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Do Financial Crises Matter for Nonlinear Exchange Rate and Stock Market Cointegration? A Heterogeneous Nonlinear Panel Data Model with PMG Approach

Author

Listed:
  • Mosab I. Tabash

    (Department of Business Administration, College of Business, Al Ain University, Al Ain P.O. Box 64141, United Arab Emirates
    Institute of Business Research, University of Economics Ho Chi Minh City, Ho Chi Minh City 700000, Vietnam)

  • Umaid A. Sheikh

    (Faculty of Management Studies, University of Central Punjab, Lahore 54000, Pakistan)

  • Ali Matar

    (College of Administrative Sciences, Applied Science University, East Al-Ekir P.O. Box 5055, Bahrain
    Department of Financial Science & Banking, School of Business, Jadara University, Irbid P.O. Box 733, Jordan)

  • Adel Ahmed

    (Amity Business School, Amity University Dubai, Dubai International Academic City, Dubai P.O. Box 345019, United Arab Emirates)

  • Dang Khoa Tran

    (Institute of Business Research, University of Economics Ho Chi Minh City, Ho Chi Minh City 700000, Vietnam)

Abstract

The existing literature has explained the causality flow from the exchange rates toward the stock market without explaining the role of the economic crisis in effecting this nexus. This study examines the role of the financial crisis in affecting the nonlinear causality flowing from the exchange rates toward the stock market indexes of the ASEAN-5 region. The precrisis, postcrisis, and overall sample duration comprised 365, 650, and 1085 observations over the periods from January 2002 to January 2008, January 2010 to January 2020, and January 2002 to January 2020, respectively. The results showed that the conventional symmetrical panel ARDL (PARDL) model was not able to formulate long-run cointegration between currency value fluctuations and stock market indexes for both regimes, i.e., the post recessionary and pre recessionary periods. However, asymmetrical cointegration was established between the currency values and stock market indexes for the pre recessionary period and the overall sampling time frame by utilizing the panel-based NARDL framework (PNARDL). The study suggests practical implications for the exporters and importers to consider the regime as well as both the negative and positive shocks in the international dollar values while making forward contractual agreements.

Suggested Citation

  • Mosab I. Tabash & Umaid A. Sheikh & Ali Matar & Adel Ahmed & Dang Khoa Tran, 2022. "Do Financial Crises Matter for Nonlinear Exchange Rate and Stock Market Cointegration? A Heterogeneous Nonlinear Panel Data Model with PMG Approach," IJFS, MDPI, vol. 11(1), pages 1-22, December.
    • Handle: RePEc:gam:jijfss:v:11:y:2022:i:1:p:7-:d:1013394
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    References listed on IDEAS

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