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Bivariate Causality between Exchange Rates and Stock Prices on Major Asian Countries

Author

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  • Hooi-Hooi Lean
  • Marwan Halim

Abstract

This paper studies the cointegration and the bivariate causality relationship between exchange rates and stock prices on the seven Asian countries badly hit by the Asian Financial Crisis. Our empirical results show that, before the 1997 Asian Financial Crisis, all countries, except the Philippines and Malaysia, experience no evidence of Granger causality between the exchange rates and the stock prices. However, the causality but not the cointegration between the capital and financial markets appear to become strong during the Asian Financial Crisis period. Surprisingly, after the 911-terrorist-attack, the causality relationship between the two markets returns to normal as in the pre-Asian-crisis period and the cointegration relationship weakens between exchange rates and stock prices. Thus, we conclude that (1) Asian Financial Crisis has a bigger and more direct impact on the causality relationship between stock prices and currency exchanges in Asian markets and the 911-terrorist-attack basically has no impact on the causality relationship between the two markets; and (2) the financial and capital markets have become more mature and efficient after the crisis.

Suggested Citation

  • Hooi-Hooi Lean & Marwan Halim, 2005. "Bivariate Causality between Exchange Rates and Stock Prices on Major Asian Countries," Monash Economics Working Papers 10/05, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2005-10
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2005/1005causality.pdf
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    References listed on IDEAS

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    Cited by:

    1. Hong-Ghi Min & Judith A. McDonald & Sang-Ook Shin, 2016. "What Makes a Safe Haven? Equity and Currency Returns for Six OECD Countries during the Financial Crisis," Annals of Economics and Finance, Society for AEF, vol. 17(2), pages 365-402, November.
    2. Afees A. Salisu & Tirimisiyu F. Oloko, 2015. "Modelling spillovers between stock market and FX market: evidence for Nigeria," Journal of African Business, Taylor & Francis Journals, vol. 16(1-2), pages 84-108, January.
    3. Stefanescu, Razvan & Dumitriu, Ramona, 2011. "Linkages between the stock prices and the exchange rates during the global crisis: the case of Romania," MPRA Paper 43350, University Library of Munich, Germany, revised 22 Oct 2011.

    More about this item

    Keywords

    Asian Financial Crisis; 911-Terrorist-Attack; Dynamic Linkages; Cointegration; Bivariate Causality;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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