IDEAS home Printed from https://ideas.repec.org/a/rmk/rmkbae/v2y2015i2p1-9.html
   My bibliography  Save this article

Are Japanese Stock Prices Important Deterministic Elements of Exchange Rate Returns?

Author

Listed:
  • Yutaka Kurihara

Abstract

This paper examines whether stock prices in Japan show indicator properties for the US-Japan exchange rate using an exchange rate premium model for the short-term. Empirical results show that changes in short-term interest rate flows, stock index differentials (US-Japan), and exchange rate premiums (Japanese yen/US dollar) exhibit consistent indicator properties for Japanese stock prices. The findings provide support for the arguments that financial variables exhibit indicator properties for exchange rate dynamics. In uncovered interest rate parity, there is a premium; however, the premium affects the spot exchange rate significantly. Exchange rates from the 2000s are determined by financial assets and show a strong difference from the 1990s.

Suggested Citation

  • Yutaka Kurihara, 2015. "Are Japanese Stock Prices Important Deterministic Elements of Exchange Rate Returns?," Bulletin of Applied Economics, Risk Market Journals, vol. 2(2), pages 1-9.
  • Handle: RePEc:rmk:rmkbae:v:2:y:2015:i:2:p:1-9
    as

    Download full text from publisher

    File URL: http://www.riskmarket.co.uk/bae/journals-articles/issues/are-japanese-stock-prices-important-deterministic-elements-of-exchange-rate-returns/?download=attachment.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Goodhart, Charles A E & McMahon, Patrick C & Ngama, Yerima Lawan, 1992. "Does the Forward Premium/Discount Help to Predict the Future Change in the Exchange Rate?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 39(2), pages 129-140, May.
    2. Keith Pilbeam & Jose Olmo, 2011. "The forward discount puzzle and market efficiency," Annals of Finance, Springer, vol. 7(1), pages 119-135, February.
    3. repec:kap:iaecre:v:17:y:2011:i:2:p:169-180 is not listed on IDEAS
    4. Martin D. D. Evans & Richard K. Lyons, 2017. "Informational Integration and FX Trading," World Scientific Book Chapters,in: Studies in Foreign Exchange Economics, chapter 7, pages 291-324 World Scientific Publishing Co. Pte. Ltd..
    5. Jose Olmo & Keith Pilbeam, 2011. "Uncovered interest parity and the efficiency of the foreign exchange market: a re‐examination of the evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 16(2), pages 189-204, April.
    6. Shu Wu, 2007. "Interest Rate Risk and the Forward Premium Anomaly in Foreign Exchange Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 423-442, March.
    7. Philippe Bacchetta & Eric Van Wincoop, 2006. "Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle?," American Economic Review, American Economic Association, vol. 96(3), pages 552-576, June.
    8. Pasquale Della Corte & Lucio Sarno & Ilias Tsiakas, 2009. "An Economic Evaluation of Empirical Exchange Rate Models," Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3491-3530, September.
    9. Dhekra Azouzi & Rohit Vishal Kumar & Chaker Aloui, 2011. "Forward Rate Unbiasedness Hypothesis in the Tunisian Exchange Rate Market," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 1(2), pages 17-44, July.
    10. Maram Srikanth & Braj Kishor, 2012. "Exchange Rate Dynamics in Indian Foreign Exchange Market: An Empirical Investigation on the Movement of USD/INR," The IUP Journal of Applied Finance, IUP Publications, vol. 18(4), pages 46-61, October.
    11. Harald Hau & Hélène Rey, 2006. "Exchange Rates, Equity Prices, and Capital Flows," Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 273-317.
    12. Heeho Kim, 2013. "Uncertainty and risk premium puzzle," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(1), pages 62-79, January.
    13. Robin Brooks & Hali Edison & Manmohan S. Kumar & Torsten Sløk, 2004. "Exchange Rates and Capital Flows," European Financial Management, European Financial Management Association, vol. 10(3), pages 511-533.
    14. Udo Broll & Peter Welzel & Kit Wong, 2015. "Exchange Rate Risk and the Impact of Regret on Trade," Open Economies Review, Springer, vol. 26(1), pages 109-119, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Asset prices; Exchange rates; Premium; Stock prices;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

    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:rmk:rmkbae:v:2:y:2015:i:2:p:1-9. 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: (Eleftherios Spyromitros-Xioufis). General contact details of provider: http://www.riskmarket.co.uk/ .

    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 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.

    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.