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Stock Prices and Exchange Rates: Empirical Evidence from Kuwait’s Financial Markets

Listed author(s):
  • Ahmed Alhayky
  • Ndambendia Houdou

This paper uses the Error Correction Model (ECM) and the Granger causality test to examine the long-run and short-run relationship between Kuwait's stock prices and exchange rate, and determines the causal relationship between them for the period June 2001-December 2008. Under the cointegration test, it is found that there is long-run equilibrium relationship between Kuwait Stock Price Index (STIDX) and exchange rates for United States Dollar (USD), Japanese Yen (YEN), and British Pound (GBP), while there is no long-run linkage relationship between STIDX and EURO. Next, based on the Granger causality test, it is found that in the long run, there is a bilateral causality between STIDX and GBP, STIDX and exchange rate YEN, and STIDX and USD. Moreover, it is observed that in the short run, STIDX has no unidirectional or bidirectional causality with exchange rate GBP. However, there is evidence of only unidirectional causality from stock prices to exchange rate, which is significant for YEN and USD.

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Article provided by IUP Publications in its journal The IUP Journal of Financial Economics.

Volume (Year): VII (2009)
Issue (Month): 3 & 4 (September & December)
Pages: 71-82

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Handle: RePEc:icf:icfjfe:v:07:y:2009:i:3&4:p:71-82
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