IDEAS home Printed from
   My bibliography  Save this article

The Causal Relationship between Stock Prices and Exchange Rates: Evidence from the G-7


  • Shyh-Wei Chen

    () (Department of International Trade, Chung Yuan Christian University, Taiwan)

  • Tzu-Chun Chen

    (Taiwan Research Institute, Taiwan)


We examine the nexus of stock prices and exchange rates for the G-7 countries by using the vector error correction model, the bounds testing methodology and linear and non-linear Granger causality methods. The empirical results substantiate that a long-run level equilibrium relationship exists among the exchange rates and stock prices for the UK and France. The results from the linear causality tests indicate significant short-run and long-run causal relations between the two financial markets. In the results of the non-linear Granger causality, there are unidirectional and bidirectional non-linear causal relations between stock prices and exchange rates in six of the G-7 countries. Therefore, the causal relations between stock prices and exchange rates are not only linear but are also non-linear.

Suggested Citation

  • Shyh-Wei Chen & Tzu-Chun Chen, 2011. "The Causal Relationship between Stock Prices and Exchange Rates: Evidence from the G-7," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 7(1), pages 101-133, January.
  • Handle: RePEc:jec:journl:v:7:y:2011:i:1:p:101-133

    Download full text from publisher

    File URL:
    Download Restriction: no

    File URL:
    Download Restriction: no

    More about this item


    exchange rate; stock price; cointegration; causality;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models


    Access and download statistics


    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:jec:journl:v:7:y:2011:i:1:p:101-133. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Yi-Ju Su). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.